Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors

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Federal Register › Vol. 83 › 83 FR 52902

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COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 4 RIN 3038-AE76 Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors AGENCY:

Commodity Futures Trading Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Commodity Futures Trading Commission (CFTC or Commission) is proposing amendments to its regulations to permit commodity pool operators (CPOs) that only solicit and/or accept funds from non-U.S. persons for participation in offshore commodity pools to claim an exemption from CPO registration and compliance requirements with respect to such pools, while permitting the maintenance of registration with respect to commodity pools for which CPO registration is required. The Commission also is proposing to allow U.S.-based CPOs of offshore commodity pools with U.S. participants to maintain the commodity pool's original books and records in the offshore location of the pool, in lieu of the CPO's main U.S. business location. Additionally, the Commission is proposing to prohibit a person that would be statutorily disqualified from registering with the Commission as a CPO from claiming or affirming an exemption from CPO registration. The Commission also is proposing registration relief for the CPOs and CTAs of entities qualifying as “family offices” and investment advisers of “business development companies,” as defined in the proposed regulations. The Commission is further proposing to permit qualifying CPOs to engage in general solicitation in their pool offerings, as contemplated by the Jumpstart Our Business Start-ups Act of 2012 (JOBS Act). Finally, the Commission is proposing to relieve certain CPOs and commodity trading advisors (CTAs) of the requirement to file Forms CPO-PQR and CTA-PR.

DATES:

Comments must be received on or before December 17, 2018.

ADDRESSES:

You may submit comments, identified by RIN number 3038-AE76, by any of the following methods:

• CFTC Comments Portal: https://comments.cftc.gov

12 (JOBS Act). Finally, the Commission is proposing to relieve certain CPOs and commodity trading advisors (CTAs) of the requirement to file Forms CPO-PQR and CTA-PR.

DATES:

Comments must be received on or before December 17, 2018.

ADDRESSES:

You may submit comments, identified by RIN number 3038-AE76, 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 instructions as for Mail, above.

Please submit your comments using only one of these methods. To avoid possible delays with mail or in-person deliveries, 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 submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (FOIA), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. 1

1 17 CFR 145.9.

empt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. 1

1 17 CFR 145.9.

The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from 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 and other applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT:

For any of the proposed amendments: Amanda Olear, Associate Director, at 202-418-5283 or aolear@cftc.gov; for the proposed amendments to §§ 4.7 and 4.13: Elizabeth Groover, Special Counsel, at 202-418-5985, egroover@cftc.gov; for the proposed amendments related to family offices: Peter Sanchez, Special Counsel, at 202-418-5237, psanchez@cftc.gov; for the proposed amendments to § 4.27: Michael Ehrstein, Special Counsel, at 202-418-5957, mehrstein@cftc.gov, Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background A. Statutory and Regulatory Background B. Advisory 18-96 1. Introduction 2. The History of Advisory 18-96 and the Commission's Rationale for Proposing Superseding Part 4 Amendments 3. Expanding the Prohibition on Statutory Disqualifications to Exemptions Under § 4.13 and Permitting Non-U.S. Person Participants in De Minimis Commodity Pools C. Proposed CPO and CTA Registration Exemptions for Qualifying Family Offices 1. Defining Family Offices 2. Family Offices as Commodity Pools and the Rescission of § 4.13(a)(4) 3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 12-37 and 14-143 D

ibition on Statutory Disqualifications to Exemptions Under § 4.13 and Permitting Non-U.S. Person Participants in De Minimis Commodity Pools C. Proposed CPO and CTA Registration Exemptions for Qualifying Family Offices 1. Defining Family Offices 2. Family Offices as Commodity Pools and the Rescission of § 4.13(a)(4) 3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 12-37 and 14-143 D. Proposed Amendments Permitting General Solicitation by CPOs Pursuant to the JOBS Act of 2012 1. The JOBS Act of 2012, Regulation D, and Rule 144A 2. Impact of JOBS Act Amendments on CPOs and DSIO's 2014 JOBS Act Relief Letter E. Proposed Exclusionary Relief for BDCs 1. The CPO Exclusion in § 4.5 2. BDCs: Exempt Investment Companies Restricted in Their Use of Commodity Interests 3. CFTC Staff Letter 12-40 and the Proposed Amendments F. Relief From § 4.27 1. History 2. Reporting Person Definition 3. Current Commission Staff Letter Relief 4. Proposing Amendments Consistent With Current Staff Letter Relief 5. Expanding Relief From § 4.27 to Additional Categories of CTAs II. Proposed Regulations A. Providing CPOs of Offshore Pools With Registration and Recordkeeping Relief Consistent With Advisory 18-96 1. New § 4.13(a)(4): The 18-96 Exemption 2. New § 4.13(a)(6): The Proposed Prohibition on Statutory Disqualifications 3. Amendments to § 4.13: Claiming the Proposed 18-96 Exemption 4. Making the 18-96 Exemption Available on a Pool-by-Pool Basis 5. Other Amendments to Miscellaneous Provisions in § 4.13 6. Preserving Advisory 18-96's Recordkeeping Location Relief with Amendments to § 4.23 and Certain Technical Amendments B. Proposed Family Office Exemptions C. Proposed Amendments Consistent With the JOBS Act Relief Letter D. Proposed BDC Exclusion E. 4.27 Relief III. Request for Comments A. Advisory 18-96 and the Proposed 18-96 Exemption B. Proposed Family Office Exemptions C. Proposed Amendments Consistent With the JOBS Act Relief Letter D. Proposed Adoption and Expansion of Exemptive Letter Relief From § 4.27 Filings IV

sed Family Office Exemptions C. Proposed Amendments Consistent With the JOBS Act Relief Letter D. Proposed BDC Exclusion E. 4.27 Relief III. Request for Comments A. Advisory 18-96 and the Proposed 18-96 Exemption B. Proposed Family Office Exemptions C. Proposed Amendments Consistent With the JOBS Act Relief Letter D. Proposed Adoption and Expansion of Exemptive Letter Relief From § 4.27 Filings IV. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act 1. Overview 2. Revisions to the Collections of Information a. OMB Control Number 3038-0005 b. OMB Control Number 3038-0023 3. Request for Comments on Collection C. Cost-Benefit Considerations 1. Consideration of the Costs and Benefits of the Commission's Action a. Summary of the Proposal b. Benefits i. Benefits Related to the Adoption of the 18-96 Exemption ii. Benefits Related to the Proposed Family Office Exemptions From CPO and CTA Registration iii. Benefits Related to the Proposed JOBS Act Relief iv. Benefits Related to the Exclusion of IAs of BDCs From the CPO Definition v. Benefits Related to Relief Under § 4.27 for CPOs and CTAs c. Costs i. Costs Related to the Proposed 18-96 Exemption ii. Costs Related to the Proposed Family Office Exemptions From CPO and CTA Registration iii. Costs Related to the Proposed Adoption of JOBS Act Relief iv. Costs Related to the Proposed Exclusion of IAs of BDCs From the CPO Definition v. Costs Related to Relief Under § 4.27 for CPOs and CTAs 2. Section 15(a) Considerations a. Protection of Market Participants and the Public b. Efficiency, Competitiveness, and Financial Integrity of Markets c. Price Discovery d. Sound Risk Management e. Other Public Interest Considerations f. Request for Comment D. Antitrust Laws I. Background

Exclusion of IAs of BDCs From the CPO Definition v. Costs Related to Relief Under § 4.27 for CPOs and CTAs 2. Section 15(a) Considerations a. Protection of Market Participants and the Public b. Efficiency, Competitiveness, and Financial Integrity of Markets c. Price Discovery d. Sound Risk Management e. Other Public Interest Considerations f. Request for Comment D. Antitrust Laws I. Background

A. Statutory and Regulatory Background

As amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 2 section 1a(11) of the Commodity Exchange Act (CEA or Act) defines the term “commodity pool operator,” as any person 3 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. 4 CEA section 1a(12) defines a “commodity trading advisor” as any person who for compensation or profit engages in the business of advising others, either directly or through publications, writings, or electronic media, as to the value of or the advisability of trading in commodity interests. 5 CEA section 4m(1) generally requires each person who satisfies the CPO or CTA definitions to register as such with the Commission. 6 With respect to CPOs, the CEA also authorizes the Commission, acting by rule or regulation, to include within, or exclude from, the term “commodity pool operator” any person engaged in the business of operating a commodity pool if the Commission determines that the rule or regulation will effectuate the purposes of the Act

sfies the CPO or CTA definitions to register as such with the Commission. 6 With respect to CPOs, the CEA also authorizes the Commission, acting by rule or regulation, to include within, or exclude from, the term “commodity pool operator” any person engaged in the business of operating a commodity pool if the Commission determines that the rule or regulation will effectuate the purposes of the Act. 7 CEA section 1a(12)(B) provides multiple exclusions from the CTA definition, and similarly affords the Commission the authority to exclude such other persons not within the intent of that provision as the Commission may specify by rule, regulation, or order. 8

2 Public Law 111-203, H.R. 4173 (2010).

3 Section 1.3 defines “person” as including individuals, associations, partnerships, corporations, and trusts. 17 CFR 1.3.

4 7 U.S.C. 1a(11). The CEA is found at 7 U.S.C. 1 et seq. (2017). The Commission's regulations are found at 17 CFR Ch. I (2017). Both the Act and the Commission's regulations are accessible through the Commission's website, http://www.cftc.gov.

5 7 U.S.C. 1a(12)(A)(i). The CTA definition also includes any person who for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning the value of or advisability of trading in commodity interests, and any person that is registered with the Commission as a CTA. 7 U.S.C. 1a(12)(A)(ii)-(iii).

6 7 U.S.C. 6m(1).

7 7 U.S.C. 1a(11)(B).

8 7 U.S.C. 1a(12)(B)(vii). The Commission recently utilized the authority in this provision in issuing an Order excluding Farm Credit System institutions from that definition, due to their similarities to banks, a type of entity that is already excluded by CEA section 1a(12)(B)(i). See Order Excluding Farm Credit System Institutions From the Commodity Exchange Act's Definition of “Commodity Trading Advisor,” 81 FR 89447 (Dec. 12, 2016)

on recently utilized the authority in this provision in issuing an Order excluding Farm Credit System institutions from that definition, due to their similarities to banks, a type of entity that is already excluded by CEA section 1a(12)(B)(i). See Order Excluding Farm Credit System Institutions From the Commodity Exchange Act's Definition of “Commodity Trading Advisor,” 81 FR 89447 (Dec. 12, 2016). CEA section 1a(12)(C) requires that the exclusions in the preceding paragraph only apply if the furnishing of such excluded CTA services is solely incidental to the conduct of their business or profession. 7 U.S.C. 1a(12)(C).

The Commission also has the power to make and promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate the provisions or to accomplish any purposes of the CEA. 9 Part 4 of the Commission's regulations governs the operations and activities of CPOs and CTAs. 10 Those regulations implement the statutory authority provided to the Commission by the CEA and establish multiple registration exemptions and exclusions for CPOs and CTAs. Part 4 also contains regulations that establish the ongoing compliance requirements applicable to CPOs and CTAs registered or required to be registered; these requirements pertain to the commodity pools and separate accounts that the CPOs and CTAs operate and advise, and provide customer protection, disclosure, and reporting to a registrant's commodity pool participants or advisory clients.

9 7 U.S.C. 12a(5).

10 See 17 CFR part 4, generally.

In March of 2017, Commission staff initiated an agency-wide internal review of CFTC regulations and practices to identify those areas that could be simplified to make them less burdensome. 11 The Commission subsequently published in the Federal Register on May 9, 2017, a Request for Information soliciting suggestions from the public regarding how the Commission's existing rules, regulations, or practices could be applied in a simpler, less burdensome manner

nternal review of CFTC regulations and practices to identify those areas that could be simplified to make them less burdensome. 11 The Commission subsequently published in the Federal Register on May 9, 2017, a Request for Information soliciting suggestions from the public regarding how the Commission's existing rules, regulations, or practices could be applied in a simpler, less burdensome manner. 12

11 See Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference in Boca Raton, FL (Mar. 15, 2017), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20 (last retrieved July 31, 2018).

12 Project KISS, 82 FR 21494 (May 9, 2017); amended by 82 FR 23765 (May 24, 2017). The Federal Register Request for Information and the suggestion letters filed by the public are available at the Commission's website: https://comments.cftc.gov/KISS/KissInitiative.aspx (last retrieved July 31, 2018).

The Investment Advisers Association (IAA) submitted suggested modifications for numerous rules in response to the Commission's Request for Information. 13 One area identified by the IAA that could result in the reduction of regulatory burden would be the incorporation into the Commission's regulations of registration and other types of relief to members of the asset management industry that meet the definitions of CPO and/or CTA that is currently provided in various staff letters.

13 See Letter from Monique Botkin, Associate General Counsel, Investment Advisers Association, (Sept. 29, 2017) (IAA Letter), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61480&SearchText (last retrieved July 31, 2018).

17) (IAA Letter), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61480&SearchText (last retrieved July 31, 2018).

In response to the information received as part of the Project KISS initiative, as well as CFTC staff's internal review of the Commission's regulatory regime, the Commission has today determined to propose several amendments to part 4 (the Proposal or NPRM). Specifically, the CFTC is proposing to amend § 4.13 to permit CPOs that solicit and/or accept funds from only non-U.S. persons for participation in offshore commodity pools to claim an exemption from CPO registration requirements with respect to such pools, while permitting the maintenance of registration with respect to commodity pools for which CPO registration is required. This proposed amendment would have the effect of expanding relief currently available 14 and incorporate it into the Commission's existing regulatory framework in 17 CFR part 4. In conjunction with this NPRM, the Commission is also proposing to adopt a prohibition on statutory disqualifications applicable to most exemptions claimed under § 4.13, and to amend the de minimis exemption in § 4.13(a)(3) to explicitly permit persons located outside of the United States as exempt de minimis commodity pool participants without consideration of their financial sophistication. The Commission is further proposing to adopt under §§ 4.13 and 4.14 new CPO and CTA registration exemptions consistent with existing Commission staff no-action letter relief available to persons considered CPOs or CTAs in connection with the operation and advising of qualifying family offices. Similarly, through proposed revisions to the exclusion from the definition of CPO in § 4.5 applicable to registered investment companies (RICs), the Commission is proposing to provide relief to the investment advisers of business development companies (BDCs) in a manner also consistent with existing no-action letter relief

in connection with the operation and advising of qualifying family offices. Similarly, through proposed revisions to the exclusion from the definition of CPO in § 4.5 applicable to registered investment companies (RICs), the Commission is proposing to provide relief to the investment advisers of business development companies (BDCs) in a manner also consistent with existing no-action letter relief.

14 Advisory 18-96, “Offshore Commodity Pools—Relief for Certain Registered CPOs From Rules 4.21, 4.22 and 4.23(a)(10) and (a)(11) and From the Location of Books and Records Requirement of Rule 4.23,” available at https://www.cftc.gov/sites/default/files/tm/advisory18-96.htm (last retrieved July 31, 2018).

Moreover, the Commission plans to continue its efforts to amend 17 CFR part 4 by proposing regulatory exemptions consistent with existing CFTC staff exemptive relief letters available to qualifying CPOs. These efforts include proposing to add exemptive relief consistent with that provided by CFTC Staff Letter 14-116, which permits the use of general solicitation by qualifying CPOs, as contemplated by the Jumpstart Our Business Start-ups Act of 2012 (as defined above, the JOBS Act), through targeted amendments to §§ 4.7 and 4.13(a)(3) in a manner consistent with that exemptive letter. 15 Additionally, in its Project KISS submission, the IAA recommended that the Commission adopt regulatory amendments to incorporate in part 4 exemptive relief from filing Form CPO-PQR, provided currently under CFTC Staff Letter 14-115 for CPOs that only operate commodity pools in accordance with §§ 4.5 and 4.13. 16 The IAA also recommended that the Commission amend part 4 to adopt the commensurate relief under CFTC Staff Letter 15-47 for registered CTAs that do not direct trading of any commodity interest accounts. 17

15 CFTC Staff Letter 14-116, available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/14-116.pdf (last retrieved July 31, 2018).

16 IAA Letter at 16.

17 Id

16 The IAA also recommended that the Commission amend part 4 to adopt the commensurate relief under CFTC Staff Letter 15-47 for registered CTAs that do not direct trading of any commodity interest accounts. 17

15 CFTC Staff Letter 14-116, available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/14-116.pdf (last retrieved July 31, 2018).

16 IAA Letter at 16.

17 Id.

In response, the Commission is proposing to adopt amendments that would provide relief from filing Form CPO-PQR to registered CPOs that only operate commodity pools exempt or excluded under §§ 4.5 and 4.13, consistent with CFTC Staff Letter 14-115, 18 and from filing Form CTA-PR to registered CTAs that do not direct trading of any commodity interest accounts, consistent with CFTC Staff Letter 15-47. 19 Finally, the Commission further proposes to provide additional relief from filing Form CTA-PR to registered CTAs that only advise pools for which the CTA is also CPO. Although the Proposal includes several potential regulatory amendments in a single notice, the CFTC may, in the future, issue separate adopting releases for any aspect of today's proposed rulemaking that is finalized. 20

18 CFTC Staff Letter 14-115, available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-115.pdf (last retrieved July 31, 2018).

19 CFTC Staff Letter 15-47, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31, 2018).

20 See Inv. Co. Institute v. CFTC, 720 F.3d 370, 379 (DC Cir. 2013) (“[A]s the Supreme Court has emphasized, `[n]othing prohibits federal agencies from moving in an incremental manner.' ”) (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 522 (2009)).

B. Advisory 18-96

tes/default/files/idc/groups/public/@lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31, 2018).

B. Advisory 18-96

1. Introduction

The Commission is aware that a number of CPOs only operate U.S.-based commodity pools soliciting and accepting funds from persons located in the U.S., whereas other CPOs solicit and accept funds from participants, whether U.S. or non-U.S., for investment in commodity pools in both domestic and international locales; still others solicit and accept funds solely from persons located outside the United States for investment in offshore pools. Based on communications with industry and Commission registrants, the Commission preliminarily believes that the variety of location in CPO business activities continues to grow, and that CPOs today frequently participate in the markets of, solicit and/or accept funds for investment from potential participants in, and operate commodity pools simultaneously in multiple jurisdictions.

In promulgating relief from registration, through the adoption of § 3.10(c)(3), 21 for firms located outside the U.S. engaged in intermediating commodity interest transactions on U.S. designated contract markets only on behalf of persons located outside the U.S., the Commission cited its own historic statements regarding its jurisdictional scope: “ `[G]iven this agency's limited resources, it is appropriate at this time to focus [the Commission's] customer protection activities upon domestic firms and upon firms soliciting or accepting orders from domestic users of the futures markets and that the protection of foreign customers of firms confining their activities to areas outside this country, its territories, and possessions may best be for local authorities in such [jurisdictions].' ”

appropriate at this time to focus [the Commission's] customer protection activities upon domestic firms and upon firms soliciting or accepting orders from domestic users of the futures markets and that the protection of foreign customers of firms confining their activities to areas outside this country, its territories, and possessions may best be for local authorities in such [jurisdictions].' ” 22 The Commission preliminarily believes that this rationale continues to be true with respect to CPOs and commodity pools, notwithstanding the expansion of CFTC jurisdiction after the passage of the Dodd-Frank Act.

21 17 CFR 3.10(c)(3).

22 Exemption From Registration for Certain Foreign Persons, Final Rule, 72 FR 63976, 63976-77 (Nov. 14, 2007) (citing 48 FR 35248, 35261 (Aug. 3, 1983)).

The Commission also preliminarily believes that the operation of offshore pools by exempt CPOs, who may also register solely with respect to the pools they operate that solicit and/or accept funds from persons in the U.S., would pose limited risk to the participants in those pools requiring registration due to the application of § 4.20. Section 4.20(c), in particular, prohibits a CPO from commingling the property of any commodity pool that it operates, or that it intends to operate, with the property of any other person. 23 This provision thereby limits the potential for trading activity or losses experienced in exempt offshore pools to negatively impact U.S. customers invested in pools for which a CPO is so registered.

23 17 CFR 4.20(c).

a CPO is so registered.

23 17 CFR 4.20(c).

Consequently, the Commission preliminarily believes that providing CPO registration relief beyond that currently provided by § 3.10(c)(3)(i) and by the staff relief in Advisory 18-96 would be beneficial and consistent with the Commission's past prioritization of agency resources for the regulation of intermediary activities affecting U.S. participants. The Commission is, therefore, proposing to adopt, among other amendments, an exemption from CPO registration in § 4.13 that would permit a CPO that solicits, 24 and/or 25 The proposed amendments are largely based upon the requirements of Advisory 18-96, the conditions of which are presented and explained below.

24 In adopting § 3.10(c)(3)(i), the Commission emphasized the significance of solicitation as a CPO not be available, even if the only customers resulting from the efforts were located outside the U.S.” Id. at 63977-78 (emphasis in original) (footnote omitted).

25 The Commission intends by the proposed amendments to permit CPOs to maintain registration with respect to the operation of commodity pools soliciting, accepting, or managing assets sourced from participants located in the U.S., while availing themselves of an exemption from registration with respect to pools located offshore for which participants located in the U.S. are solicited or permitted as participants.

2. The History of Advisory 18-96 and the Commission's Rationale for Proposing Superseding Part 4 Amendments

On April 11, 1996, staff from the Commission's Division of Trading and Markets (T&M), a predecessor of today's Division of Swap Dealer and Intermediary Oversight (DSIO or Division), issued Advisory 18-96, 26 under which two types of relief are currently available. Qualifying, registered CPOs operating offshore commodity pools may claim exemptive relief from the disclosure, reporting, and recordkeeping requirements of §§ 4.21, 4.22, and 4.23(a)(10) and (a)(11) with regard to their offshore commodity pools

s Division of Swap Dealer and Intermediary Oversight (DSIO or Division), issued Advisory 18-96, 26 under which two types of relief are currently available. Qualifying, registered CPOs operating offshore commodity pools may claim exemptive relief from the disclosure, reporting, and recordkeeping requirements of §§ 4.21, 4.22, and 4.23(a)(10) and (a)(11) with regard to their offshore commodity pools. 27 Alternatively, Advisory 18-96 also permits qualifying, registered onshore CPOs to claim exemptive relief from solely the books and records location requirement in § 4.23, 28 thereby allowing such CPOs to maintain their offshore pool's original books and records at the pool's offshore location, rather than at the CPO's main business address in the U.S.

26 Advisory 18-96, “Offshore Commodity Pools—Relief for Certain Registered CPOs From Rules 4.21, 4.22 and 4.23(a)(10) and (a)(11) and From the Location of Books and Records Requirement of Rule 4.23,” at p. 1, available at https://www.cftc.gov/sites/default/files/tm/advisory18-96.htm (last retrieved July 31, 2018).

27 Section 4.21, subject to certain conditions, requires each CPO registered or required to be registered under the CEA to deliver or cause to be delivered to a prospective participant in a pool that it operates or intends to operate a Disclosure Document for the pool that complies with §§ 4.24 and 4.25 by no later than the time it delivers to the prospective participant a subscription agreement for the pool. 17 CFR 4.21; see also 17 CFR 4.24-4.25.

Section 4.22 governs the periodic reporting required for commodity pools and generally requires each CPO registered or required to be registered to periodically distribute to each participant in a pool it operates periodic Account Statements and Annual Reports, which also must be filed with the Commission through the National Futures Association. 17 CFR 4.22

CFR 4.21; see also 17 CFR 4.24-4.25.

Section 4.23 requires each CPO registered or required to be registered to make and keep certain books and records concerning both the commodity pool(s) it operates and the CPO itself; paragraphs (a)(10) and (a)(11) particularly require a CPO to make and keep with respect to a commodity pool it operates a Statement of Financial Condition on a monthly or quarterly basis dependent on the amount of the net assets of the commodity pool, as well as a corresponding Statement of Income (Loss). 17 CFR 4.23(a)(10) and (a)(11).

At the time of its adoption in 1996, Advisory 18-96 provided relief from the more robust compliance burdens then applicable to CPOs, i.e., the disclosure and periodic reporting requirements.

28 17 CFR 4.23.

Generally, to qualify for the broadest relief available under Advisory 18-96, a CPO must meet the following requirements:

1. The CPO claiming the relief is registered as such with the Commission;

2. The commodity pool is, and will remain, organized and operated outside of the United States;

3. The commodity pool will not hold meetings or conduct administrative activities within the United States;

4. No shareholder of or other participant in the commodity pool is or will be a United States person;

5. The commodity pool will not receive, hold or invest any capital directly or indirectly contributed from sources within the United States; and

6. The CPO, the commodity pool and any person affiliated therewith will not undertake any marketing activity for the purpose, or that could reasonably have the effect, of soliciting participation from United States persons

l be a United States person;

5. The commodity pool will not receive, hold or invest any capital directly or indirectly contributed from sources within the United States; and

29 Advisory 18-96, at 1.

To qualify for the recordkeeping location relief under the Advisory, a registered CPO must represent the following:

1. The CPO will maintain the original books and records of the commodity pool at the main business office of the commodity pool located outside the United States;

2. The CPO desires to maintain such books and records outside the United States in furtherance of compliance with the Internal Revenue Service (IRS) requirements for relief from United States federal income taxation;

3. The CPO will maintain duplicate books and records of the commodity pool at a designated office in the United States; and

4. Within 72 hours after the request of a representative from the Commission, the United States Department of Justice, or the National Futures Association (NFA), the original books and records will be provided to such representative at a place located in the United States that is specified by the representative. 30

30 The Advisory states further, “[f]iling a notice of a claim for exemption under [this section] of the Advisory, however, does not eliminate the requirement to comply with the location of the CPO's own books and records under Rule 4.23(b) or, in the case of a CPO of a Rule 4.7 exempt pool, the location requirement for the CPO's own books and records under Rule 4.7(a)(2)(iv).” Advisory 18-96 at 2

The Advisory additionally requires all claimants of either type of relief thereunder to represent that, “neither the CPO nor any of its principals is subject to any statutory disqualification under CEA section 8a(2) or 8a(3) unless such disqualification arises from a matter which (a) was previously disclosed in connection with a previous application for registration if such registration was granted, or (b) was disclosed to the Commission or the NFA more than thirty days prior to the filing of this notice.” 31 Notices claiming relief under Advisory 18-96 were originally required to be submitted in writing and filed with both Commission staff and NFA, to provide basic business location and contact information for the CPO, to specify which type of relief the CPO sought to claim for its commodity pool(s), and to be signed by a representative duly authorized to bind the CPO (“if a sole proprietorship, by the sole proprietor; if a partnership, by a general partner; and if a corporation, by the chief executive officer or chief financial officer”). 32

31 Advisory 18-96, at 2; see also 7 U.S.C. 12a(2) and 12a(3).

at 2; see also 7 U.S.C. 12a(2) and 12a(3).

32 Advisory 18-96, at 3. In 1997, the Commission authorized the NFA to, among other things, accept and process Advisory 18-96 notices of claim for exemption from the part 4 requirements. See Performance of Certain Functions by National Futures Association with Respect to Commodity Pool Operators and Commodity Trading Advisors, 62 FR 52088 (Nov. 1, 1997). Notably, “[n]otwithstanding any notice of a claim of exemption filed under this Advisory, persons claiming such relief remain subject to all other applicable requirements contained in the Act and the Commission's regulations issued thereunder, including, without limitation, the antifraud provisions of Sections 4b and 4 o of the Act, the reporting requirements for traders set forth in Parts 15, 18, and 19 of the Commissions regulations, and all other provisions of [p]art 4.” Advisory 18-96, at 3.

Given the increase in the Commission's jurisdiction resulting from the passage of the Dodd-Frank Act, 33 as well as the adoption of 34 the Commission preliminarily believes that the adoption of a CPO registration exemption based on the conditions of Advisory 18-96 (18-96 Exemption) would benefit industry participants, prioritize the use of Commission resources on the customer protection of actual and potential commodity pool participants located in the U.S., and provide relief to persons with respect to their commodity pool operations that have a limited nexus with markets or participants within the Commission's jurisdiction. Importantly, a CPO claiming the 18-96 Exemption, as proposed, would still be subject to the anti-manipulation and anti-fraud provisions of the CEA, and by virtue of § 4.13(c), would be required to make and keep books and records for the exempt pool, and to submit to such special calls as the Commission may make to demonstrate eligibility for and compliance with the criteria of the 18-96 Exemption

Importantly, a CPO claiming the 18-96 Exemption, as proposed, would still be subject to the anti-manipulation and anti-fraud provisions of the CEA, and by virtue of § 4.13(c), would be required to make and keep books and records for the exempt pool, and to submit to such special calls as the Commission may make to demonstrate eligibility for and compliance with the criteria of the 18-96 Exemption. 35

33 For instance, the Dodd-Frank Act amended the CPO definition in CEA section 1a(11) to include any person engaged in a business that is of the nature of a commodity pool that trades in swap transactions. See 7 U.S.C. 1a(11), as amended by the

34 See, e.g., 17 CFR 4.27 (imposing obligations on certain CPOs to periodically file detailed information regarding pools and other funds that the CPOs operate on Form CPO-PQR).

35 17 CFR 4.13(c).

The amendments proposed today would incorporate both types of relief provided by Advisory 18-96 in their entirety in the Commission's existing part 4 regulatory framework by providing registration and compliance exemptions for qualifying persons operating offshore pools, with respect to CPO registration and, in the case of those domestic, registered CPOs operating offshore pools, with respect to the books and records location requirement in § 4.23. 36 The Commission intends that the 18-96 Exemption, if adopted as proposed, would replace the exemptive relief currently provided to registered CPOs relying upon Advisory 18-96 for their offshore pool operations. Similarly, the Commission also intends that the proposed amendments to § 4.23, which would provide a qualifying, registered onshore CPO an exemption from the requirement that the CPO maintain the original books and records of its offshore commodity pool(s) at its main business office in the U.S., would replace that aspect of the Advisory

ying upon Advisory 18-96 for their offshore pool operations. Similarly, the Commission also intends that the proposed amendments to § 4.23, which would provide a qualifying, registered onshore CPO an exemption from the requirement that the CPO maintain the original books and records of its offshore commodity pool(s) at its main business office in the U.S., would replace that aspect of the Advisory. 37 The Commission preliminarily believes that these proposed amendments, if adopted, would ultimately provide more comprehensive relief from CPO and pool regulation than the Advisory alone and more flexibility than the terms of § 3.10(c)(3)(i).

36 In 2006-2007, based on a rulemaking petition from NFA, the Commission previously considered and proposed to rescind Advisory 18-96, which was thought to be rendered superfluous or duplicative by the 2003 adoption of the CPO registration exemptions in § 4.13(a)(3) and (4). See Electronic Filing of Notices of Exemption and Exclusion Under Part 4 of the Commission's Regulations, 71 FR 60454 (Oct. 13, 2006) (Proposing Release), and 72 FR 1658 (Jan. 16, 2007) (Adopting Release) (declining to supersede Advisory 18-96, in light of the 2003 adoption of § 4.13(a)(4)). Section 4.13(a)(4), prior to its 2012 rescission, permitted a qualifying person to claim an exemption from registration with the Commission as a CPO, where the commodity pool it operates is exempt from registration under the Securities Act of 1933 and the natural and non-natural person participants meet certain levels of sophistication, e.g., qualified eligible persons or accredited investors. Although Advisory 18-96 and § 4.13(a)(4) overlapped significantly, the Commission declined to alter Advisory 18-96, in an effort to preserve the relief from the books and record location requirement in § 4.23 for any registered, onshore CPOs utilizing the Advisory18-96 relief with respect to their qualifying offshore commodity pools. See 72 FR at 1661

fied eligible persons or accredited investors. Although Advisory 18-96 and § 4.13(a)(4) overlapped significantly, the Commission declined to alter Advisory 18-96, in an effort to preserve the relief from the books and record location requirement in § 4.23 for any registered, onshore CPOs utilizing the Advisory18-96 relief with respect to their qualifying offshore commodity pools. See 72 FR at 1661.

37 The Commission simultaneously proposes certain structural amendments to § 4.23 to increase that regulation's readability and ease of application.

3. Expanding the Prohibition on Statutory Disqualifications to Exemptions Under § 4.13 and Permitting Non-U.S. Person Participants in De Minimis Commodity Pools

Currently, none of the CPO registration exemptions in § 4.13 prohibits statutory disqualifications as a condition of relief. In contrast, one of the requirements to obtain relief under Advisory 18-96 is that neither the registered CPO nor its principals is subject to any statutory disqualification under sections 8a(2) or 8a(3) of the Act, 38 unless such disqualification arises from a matter which was previously disclosed in connection with a previous application, if such registration was granted, or which was disclosed more than thirty days prior to the claim of this exemption. The Commission is considering, therefore, whether there could be a substantial number of CPOs that claimed a § 4.13 exemption and are subject to statutory disqualifications or that employ statutorily disqualified principals, and whether those statutorily disqualified individuals should be permitted to operate commodity pools as exempt CPOs.

38 7 U.S.C. 12a(2) and 12(a)(3)

laim of this exemption. The Commission is considering, therefore, whether there could be a substantial number of CPOs that claimed a § 4.13 exemption and are subject to statutory disqualifications or that employ statutorily disqualified principals, and whether those statutorily disqualified individuals should be permitted to operate commodity pools as exempt CPOs.

38 7 U.S.C. 12a(2) and 12(a)(3). Under CEA section 8a(2), for instance, the Commission may refuse to register a person who has been temporarily or permanently enjoined by order not to act as a Commission registrant, or to refrain from engaging in financially criminal activities, or who, within ten years preceding the application for registration with the Commission, has been convicted of a felony for criminal activities involving commodity interests or securities, or been found by the Commission or another governmental body or agency to have violated the CEA, Commission regulations, or securities laws. 7 U.S.C. 12a(2).

The Commission is concerned that it poses undue risk from a customer protection standpoint for its regulations in their current form to permit statutorily disqualified persons or entities to legally operate exempt commodity pools, especially when those same persons would not be permitted to register with the Commission. 39 The Commission preliminarily believes that preserving the prohibition on statutory disqualifications from Advisory 18-96 and applying it to exemptions under § 4.13 would provide a substantial customer protection benefit by prohibiting statutorily disqualified persons from operating and soliciting participants for investment in exempt commodity pools.

39 Commission staff previously became aware of a number of statutorily disqualified CPOs operating commodity pools pursuant to the registration exemption available in former § 4.13(a)(4)

xemptions under § 4.13 would provide a substantial customer protection benefit by prohibiting statutorily disqualified persons from operating and soliciting participants for investment in exempt commodity pools.

39 Commission staff previously became aware of a number of statutorily disqualified CPOs operating commodity pools pursuant to the registration exemption available in former § 4.13(a)(4). Because that exemption was rescinded in 2012, those particular CPOs would have been required to modify their operations to comply with another exemption under § 4.13 that did not bar statutorily disqualified CPOs, to cease participating in the commodity interest markets, or to receive relief from the Commission to register and continue operating.

Consequently, the Commission is proposing to require any person claiming a registration exemption under § 4.13(a)(1), (2), (3), or (5), or proposed § 4.13(a)(4), 40 to represent that neither the claimant nor any of its principals is subject to statutory disqualifications under sections 8a(2) or 8a(3) of the CEA. However, the Commission also proposes to incorporate certain limited exceptions already present in Advisory 18-96 that would permit statutory disqualifications that were previously disclosed in registration applications that were granted, or that were disclosed more than 30 days prior to the claim of exemption. The Commission preliminarily believes this approach addresses customer protection concerns regarding statutory disqualifications, while preserving flexibility in Commission regulations applicable to CPOs. As proposed, the prohibition would apply to current claimants under § 4.13 as they renew their claims on an annual basis— i.e., existing claimants would be required to represent that

40 The Commission is not proposing to extend the prohibition to the proposed exemption for qualifying family offices, discussed infra as proposed § 4.13(a)(8)

lexibility in Commission regulations applicable to CPOs. As proposed, the prohibition would apply to current claimants under § 4.13 as they renew their claims on an annual basis— i.e., existing claimants would be required to represent that

40 The Commission is not proposing to extend the prohibition to the proposed exemption for qualifying family offices, discussed infra as proposed § 4.13(a)(8). By the terms of that proposed exemption, such CPOs would be prohibited from soliciting non-family members/clients to participate in their pool(s), necessarily limiting their contact with prospective participants drawn from the general public, and as a result, reducing the Commission's customer protection concerns in that context.

Additionally, the Commission is proposing to amend the de minimis commodity pool exemption in § 4.13(a)(3) to explicitly permit non-U.S. person participants, regardless of their financial sophistication. 41 The Commission understands that, relying on CFTC Staff Letter 04-13, 42 for purposes of determining whether a person qualifies for exemption from CPO registration under § 4.13(a)(3), market participants are generally not considering whether non-U.S. person participants meet one of the investor sophistication criteria listed in § 4.13(a)(3)(iii). 43

41 17 CFR 4.13(a)(3). Section 4.13(a)(3) provides an exemption from CPO registration for any person who offers a pool that: (1) Is exempt from registration under the Securities Act of 1933 and offered and sold without marketing to the public in the U.S., (2) at all times, is traded subject to de minimis trading thresholds, (3) is limited to certain types of investors that the person believes to be, at the time of investment or conversion to an exempt pool, accredited investors and/or qualified eligible persons, and (4) is not marketed as or in a vehicle for trading in commodity interests. Id.

42 CFTC Staff Letter 04-13 (Apr

e public in the U.S., (2) at all times, is traded subject to de minimis trading thresholds, (3) is limited to certain types of investors that the person believes to be, at the time of investment or conversion to an exempt pool, accredited investors and/or qualified eligible persons, and (4) is not marketed as or in a vehicle for trading in commodity interests. Id.

42 CFTC Staff Letter 04-13 (Apr. 14, 2004), available at https://www.cftc.gov/sites/default/files/tm/letters/04letters/tm04-13.htm (last retrieved July 31, 2018).

43 In April 2004, the Division of Clearing and Intermediary Oversight (DCIO), the most recent predecessor to DSIO, responded to a request for clarification or interpretation of the de minimis exemption from CPO registration in § 4.13(a)(3). The requester asked DCIO staff for confirmation that “a [CPO] claiming exemption from registration under new Rule 4.13(a)(3) may permit Non-United States persons to participate in pools operated pursuant to such exemptive relief, regardless of whether such Non-United States persons meet the investor sophistication requirements of Rule 4.13(a)(3)(iii).” CFTC Staff Letter 04-13, at 1. DCIO staff concluded that because the exemption in § 4.13(a)(4) permitted non-U.S. person participants in pools exempt thereunder, regardless of their financial sophistication, by virtue of the “qualified eligible person” definition in § 4.7(a)(2), then it would be “consistent with the intent and purpose of Rule 4.13(a)(3)” to also generally permit non-U.S. person investors to participate in § 4.13(a)(3) pools. Id. at 2. In 2012, the Commission rescinded the exemption originally provided by § 4.13(a)(4), the features of which comprise the legal underpinnings for the analysis in CFTC Staff Letter 04-13. See Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 FR 11252 (Feb. 24, 2012); correction notice published at 77 FR 17328 (Mar. 26, 2012) (CPO CTA Final Rule).

The Commission preliminarily believes that permitting non-U.S

tion originally provided by § 4.13(a)(4), the features of which comprise the legal underpinnings for the analysis in CFTC Staff Letter 04-13. See Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 FR 11252 (Feb. 24, 2012); correction notice published at 77 FR 17328 (Mar. 26, 2012) (CPO CTA Final Rule).

The Commission preliminarily believes that permitting non-U.S. person participants, regardless of their financial sophistication, in § 4.13(a)(3) exempt pools would generally be consistent with the Commission's policy approach in proposing to add the 18-96 Exemption to the 17 CFR part 4 regulatory framework. With limited participation in U.S. commodity interest markets subject to Commission jurisdiction, commodity pools exempt under § 4.13(a)(3) do not trigger the same level of regulatory interest for the Commission as commodity pools requiring CPO registration and compliance with all or part of the requirements in 17 CFR part 4. Additionally, § 4.7 already permits non-U.S. persons, 44 regardless of their “qualified eligible person” (QEP) status, to participate in commodity pools operated thereunder, which are not subject to de minimis commodity interest trading thresholds. The Commission also preliminarily believes that it would be consistent with the Commission's other part 4 regulations, including those amendments proposed today, to generally permit non-U.S. person participants in § 4.13(a)(3) exempt pools. Therefore, the Commission proposes today to also amend § 4.13(a)(3)(iii) to specifically permit non-U.S. person participants. 45

44 17 CFR 4.7(a)(1)(iv).

45 If adopted, the proposed rule would supersede prior staff positions on this subject, including CFTC Staff Letter 04-13.

ing those amendments proposed today, to generally permit non-U.S. person participants in § 4.13(a)(3) exempt pools. Therefore, the Commission proposes today to also amend § 4.13(a)(3)(iii) to specifically permit non-U.S. person participants. 45

44 17 CFR 4.7(a)(1)(iv).

45 If adopted, the proposed rule would supersede prior staff positions on this subject, including CFTC Staff Letter 04-13.

C. Proposed CPO and CTA Registration Exemptions for Qualifying Family Offices

The Commission is also proposing today amendments consistent with two Commission staff no-action letters that currently provide relief from CPO 46 and CTA 47 registration to qualifying family offices (Family Offices) with respect to investment management and advisory activities conducted on behalf of their family clients (Family Clients).

46 CFTC Staff Letter 12-37 (Nov. 29, 2012), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/12-37.pdf (last retrieved July 31, 2018) (CPO Family Office No-Action Letter).

47 CFTC Staff Letter 14-143 (Nov. 5, 2014), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-143.pdf (last retrieved July 31, 2018) (CTA Family Office No-Action Letter).

1. Defining Family Offices

df (last retrieved July 31, 2018) (CTA Family Office No-Action Letter).

1. Defining Family Offices

A Family Office is generally understood to be a professional organization that is wholly-owned by clients in a family, including members of a family and/or entities controlled by a family or family member, e.g., charitable trusts, and that is operated as a wealth management tool for their benefit. 48 In granting no-action relief from CPO registration to qualifying Family Offices, Commission staff has previously stated that, “[t]ypically, a family office structure is employed when one or more direct members of a family create substantial wealth, and share that wealth in whole or in part with other members of that family, either through direct transfer, inheritance, or similar means.” 49 The Division noted further that, “[t]he family office is then used to provide personalized services to that family, including advice regarding issues of tax, estate planning, investment, and charitable giving.” 50 According to the Private Investors Coalition, which frequently comments on regulatory efforts impacting Family Offices and which requested the relief from CTA registration granted by DSIO in 2014 via CFTC Staff Letter 14-143, “single family offices have existed for over 100 years . . . [and] were formed to implement very important and complex objectives, including investment management, corporate succession, estate, gift, and income tax planning and charitable giving issues that are important to members of the family.” 51

48 See, e.g., Letter from the Vlasic Investments, L.L.C., an entity formed to manage the wealth of the Vlasic Family, to the Securities and Exchange Commission, at 1 (Nov. 17, 2010), available at https://www.sec.gov/comments/s7-25-10/s72510-83.pdf (last retrieved July 31, 2018), submitted as a comment to Family Offices, Investment Advisers Act Release No. 3098, 75 FR 63753 (Oct. 18, 2010).

49 CPO Family Office No-Action Letter, at 1.

50 Id

s, L.L.C., an entity formed to manage the wealth of the Vlasic Family, to the Securities and Exchange Commission, at 1 (Nov. 17, 2010), available at https://www.sec.gov/comments/s7-25-10/s72510-83.pdf (last retrieved July 31, 2018), submitted as a comment to Family Offices, Investment Advisers Act Release No. 3098, 75 FR 63753 (Oct. 18, 2010).

49 CPO Family Office No-Action Letter, at 1.

50 Id.

51 Letter from the Private Investors Coalition to the SEC, at 2 (Nov. 11, 2010), available at https://www.sec.gov/comments/s7-25-10/s72510-11.pdf (last retrieved July 31, 2018), submitted as a comment to Family Offices, Investment Advisers Act Release No. 3098, 75 FR 63753 (Oct. 18, 2010). The Private Investors Coalition also emphasized that although Family Offices may be formed by a single family member who created the wealth to be managed, they are also commonly formed by one or more lineal descendants of such family members. Id.

2. Family Offices as Commodity Pools and the Rescission of § 4.13(a)(4)

As discussed above, the operations of a Family Office frequently involve the collective management of pooled assets from a variety of sources, notwithstanding that those sources may all be members of a single family, or organizations, trusts, or foundations for the benefit of those family members. If such pooled assets are invested in commodity interests, 52 then it is highly likely that the managing member of the Family Office, or similarly situated persons providing services to the Family Office, is engaging in activities that would otherwise require registration with the Commission as a CPO or CTA. Consequently, absent an exemption,

52 17 CFR 1.3.

ission as a CPO or CTA. Consequently, absent an exemption,

52 17 CFR 1.3.

In the 1990s and early 2000s, Commission staff frequently responded to individual requests from Family Offices for relief from CPO and CTA regulation with one-off relief letters determining the Family Office not to be a commodity pool or providing no-action relief from such registration to certain family members or staff. 53 In 2003, the Commission adopted former § 4.13(a)(4), which provided an exemption from CPO registration for a person operating a commodity pool: (1) Whose interests are exempt from registration under the Securities Act of 1933, 54 and are offered and sold without marketing to the public in the U.S.; and (2) whose participants are reasonably believed, at the time of investment or conversion of the pool to an exempt pool, to be QEPs as defined in § 4.7(a)(2) 55 if natural persons, or QEPs or “accredited investors,” in the case of non-natural person participants. 56

53 See, e.g., CFTC Staff Letter 00-100 (Nov. 1, 2000) (finding that a limited partnership consisting of immediate family members that invests family assets in commodity futures is not a pool), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/00-100.pdf (last retrieved July 31, 2018); CFTC Staff Letter 97-78 (Sept. 24, 1997) (finding that a partnership consisting of family members, former family members, and trusts for the benefit of family members is not a commodity pool within the meaning and intent of § 4.10(d)), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/97-78.pdf (last retrieved July 31, 2018).

54 15 U.S.C. 77a et seq.

55 17 CFR 4.7(a)(2).

56 17 CFR 4.13(a)(4) (2010).

eved July 31, 2018).

54 15 U.S.C. 77a et seq.

55 17 CFR 4.7(a)(2).

56 17 CFR 4.13(a)(4) (2010).

Prior to the exemption's rescission in 2012, many Family Offices claimed former § 4.13(a)(4) to legally operate their investment vehicles, invest in commodity interests, and provide commodity trading advice to Family Clients, without being required to register with the Commission in any capacity. 57 In 2011, the Commission proposed to rescind § 4.13(a)(4) 58 and the potential impact on Family Offices was immediately noted; the Commission received comments suggesting that the Commission allow Family Offices already in existence and then relying on the exemption in § 4.13(a)(4) to be grandfathered, such that they could continue to operate without registration even after the exemption's rescission. 59 In declining to do so, the Commission stated in the 2012 Adopting Release:

57 Further, as CPOs exempt pursuant to § 4.13(a)(4), such Family Offices also routinely relied upon the self-executing exemption in § 4.14(a)(5), which provides an exemption from CTA registration to a person that is exempt from registration as a CPO and the person's commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so exempt. See 17 CFR 4.14(a)(5).

58 Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11, 2011).

59 See comment letters from New York State Bar Association (Apr. 12, 2011); Alternative Investment Management Association, Ltd. (Apr. 12, 2011); Schulte Roth & Zabel LLP (Apr. 12, 2011); Fulbright & Jaworski L.L.P. (Apr. 12, 2011); Securities Industry and Financial Markets Association (Apr. 12, 2011); Seward & Kissel, LLP (Apr. 12, 2011); Katten, Muchin, Rosenman LLP (Apr. 12, 2011); all available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=973 (last retrieved July 31, 2018).

The Commission does not believe that “grandfathering” is appropriate in this context

Fulbright & Jaworski L.L.P. (Apr. 12, 2011); Securities Industry and Financial Markets Association (Apr. 12, 2011); Seward & Kissel, LLP (Apr. 12, 2011); Katten, Muchin, Rosenman LLP (Apr. 12, 2011); all available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=973 (last retrieved July 31, 2018).

The Commission does not believe that “grandfathering” is appropriate in this context. As the Commission stated in its Proposal, part of the purpose of rescinding § 4.13(a)(4) is to ensure that entities that are engaged in derivatives trading are subject to substantively identical registration and compliance obligations and oversight by the Commission. Grandfathering is not consistent with the stated goals of the Commission's rescission and would result in disparate treatment of similarly situated entities. Therefore, the Commission will implement the rescission of § 4.13(a)(4) for all entities currently claiming exemptive relief thereunder. 60

60 See CPO CTA Final Rule, 77 FR at 11263.

Alternatively, other commenters requested that “the Commission adopt an exemption from registration for family offices that is consistent with the exemption adopted by the [Securities and Exchange Commission (SEC)],” discussed infra. 61 The Commission declined, however, to adopt the SEC's relief for Family Offices in 2012, because: 61 Id. (citing the SEC's Family Office exclusion from the investment adviser definition at 17 CFR 250.202(a)(11)(G)-1).

The Commission, therefore, believes that it is prudent to withhold consideration of a family offices exemption until the Commission has developed a comprehensive view regarding such firms to enable the Commission to better assess the universe of firms that may be appropriate to include within the exemption, should the Commission decide to adopt one. Therefore, the Commission is directing its staff to look into the possibility of adopting a family offices exemption in the future. 62

62 Id

ffices exemption until the Commission has developed a comprehensive view regarding such firms to enable the Commission to better assess the universe of firms that may be appropriate to include within the exemption, should the Commission decide to adopt one. Therefore, the Commission is directing its staff to look into the possibility of adopting a family offices exemption in the future. 62

62 Id. (citing 17 CFR 140.99(a)(3) and a variety of historic Family Office relief letters).

Finally, the Commission stated that Family Offices would “continue to be permitted to write in on a firm by firm basis to request interpretative relief from the registration and compliance obligations under the Commission's rules and to rely on those interpretative letters already issued to the extent permissible under the Commission's regulations.” 63 Thus, pursuant to the amendments to 17 CFR part 4 adopted in 2012, among which was the rescission of § 4.13(a)(4), many Family Offices were required to register with the Commission as CPOs, if they could not qualify for an alternative exemption or otherwise obtain relief from Commission staff. 64

63 Id. (concluding that “an exemption for family offices is not necessary at this time”).

64 The Commission noted then that “family offices previously relying on the exemption under Regulation § 4.13(a)(3) will not be affected by the rules adopted herein, as the Commission is not rescinding the § 4.13(a)(3) exemption and it will remain available to entities meeting its criteria.” CPO CTA Final Rule, 77 FR at 11263.

3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 12-37 and 14-143

criteria.” CPO CTA Final Rule, 77 FR at 11263.

3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 12-37 and 14-143

In 2011, the SEC adopted an exclusion from the term “investment adviser,” (IA) as defined by the Investment Advisers Act of 1940, as amended (IA Act), 65 for Family Offices (SEC Family Office Exclusion), thus excluding Family Offices from regulation under the IA Act. 66 Specifically, § 275.202(a)(11)(G)-1(a) provides that a family office, as defined in that section, shall not be considered to be an investment adviser for purpose of the IA Act, and § 275.202(a)(11)(G)-1(b) defines “family office” as a company (including its directors, partners, members, managers, trustees, and employees acting within the scope of their position or employment) that: Has no clients other than family clients, is wholly owned by family clients and is exclusively controlled (directly or indirectly) by one or more family members and/or family entities; and does not hold itself out to the public as an investment adviser. 67

65 15 U.S.C. 80b-1, et seq.

66 Family Offices; Final Rule, 76 FR 37983 (Jun. 29, 2011) (SEC Family Office Final Rule).

67 17 CFR 275.202(a)(11)(G)-1(a) and 275.202(a)(11)(G)-1(b).

Because Family Offices, as such term is commonly understood, are not intended to be marketed as an option for investing by the general public, Family Offices are restricted, by definition and in practice, to accepting assets for management from or providing services to solely “family clients.” As a result, the SEC Family Office Exclusion defines a Family Client as including family members, including non-blood relatives such as spouses and adopted children, former family members, key employees of the Family Office, former key employees (under certain conditions), as 68 Family Clients also may include the estate of a family member, former family member, key employee, or subject to certain conditions, former key employees

e Exclusion defines a Family Client as including family members, including non-blood relatives such as spouses and adopted children, former family members, key employees of the Family Office, former key employees (under certain conditions), as 68 Family Clients also may include the estate of a family member, former family member, key employee, or subject to certain conditions, former key employees. 69 Additionally, investment and estate planning vehicles, such as irrevocable trusts, in which one or more other Family Clients are the only current beneficiaries, are also permitted Family Clients. 70

68 17 CFR 275.202(a)(11)(G)-1(d)(4) (extensively defining “Family Client”).

69 Id.

70 Id. See Staff Responses to Questions About the Family Office Rule, available at https://www.sec.gov/divisions/investment/guidance/familyofficefaq.htm.

Pursuant to the Commission's instructions in the CPO CTA Final Rule, many Family Offices sought relief from DSIO staff following the 2012 rescission of § 4.13(a)(4). Certain representatives of the Family Office industry requested relief that would be available to Family Offices on a global basis and would be based upon the SEC Family Office Exclusion. In the request for relief, industry representatives asserted that Family Offices are not operations of the type and nature that warrant regulatory oversight by the Commission, because, by definition, a Family Office is not a vehicle in which non-Family Clients would be solicited or permitted to invest. Because a Family Office is comprised of participants with close relationships, and there is a direct relationship between the clients and the CPO or advisor, it was argued that such relationships greatly reduce the need for the customer protections available pursuant to the regulations in 17 CFR part 4. 71

71 CPO Family Office No-Action Letter, at 1-2. This rationale is also noted in the adopting release of the SEC Family Office Exclusion. See also SEC Family Office Final Rule, 76 FR at 37984

t relationship between the clients and the CPO or advisor, it was argued that such relationships greatly reduce the need for the customer protections available pursuant to the regulations in 17 CFR part 4. 71

71 CPO Family Office No-Action Letter, at 1-2. This rationale is also noted in the adopting release of the SEC Family Office Exclusion. See also SEC Family Office Final Rule, 76 FR at 37984.

Having met with Family Office industry representatives and observed the SEC's experience after adopting the SEC Family Office Exclusion, Commission staff thoroughly considered the issue and ultimately determined to grant registration relief for Family Offices meeting the requirements of the SEC Family Office Exclusion. On November 29, 2012, DSIO issued CFTC Staff Letter 12-37, a no-action letter permitting Family Offices complying with the SEC Family Office Exclusion to operate and manage the assets of Family Clients without having to register with the Commission as a CPO. 72 Subsequently, in responding to a request for relief from the Private Investors Coalition, DSIO issued another no-action letter permitting Family Offices to provide their Family Clients with commodity trading advice, without CTA registration, provided that the Family Office did not hold itself out to the public as a CTA and restricted any commodity trading advice given to the Family Office itself and/or Family Clients. 73

72 CPO Family Office No-Action Letter.

73 CTA Family Office No-Action Letter

ther no-action letter permitting Family Offices to provide their Family Clients with commodity trading advice, without CTA registration, provided that the Family Office did not hold itself out to the public as a CTA and restricted any commodity trading advice given to the Family Office itself and/or Family Clients. 73

72 CPO Family Office No-Action Letter.

73 CTA Family Office No-Action Letter.

In granting the no-action relief from CPO registration, DSIO staff considered the requesters' assertion that, “this issue has similarly been addressed by the [SEC], which resulted in an exclusion for family offices that would otherwise be required to register as an investment adviser[,]” and that “SEC staff ha[d] devoted substantial time and resources to addressing this issue.” 74 In determining to issue relief, the Division reasoned that “the fundamental issue of the appropriate application of investor protection standards as required by each respective agency's regulations is substantially similar.” 75 Further, the Division concluded that granting the relief would place “both agencies on equal footing with respect to the application of investor protections relevant to this issue [and] will facilitate compliance with both regulatory regimes.” 76 Consequently, through CFTC Staff Letters 12-37 and 14-143, the Division provided no-action relief with respect to CPO registration for any person filing a claim that operates a Family Office, as that term is defined in 17 CFR 275.202(a)(11)(G)-1(b), and with respect to CTA registration, for any person filing a claim whose advisory services are limited to a Family Office and/or Family Clients, as defined in 17 CFR 275.202(a)(11)(G)-1(d)(4). 77 Under each letter, the claimant is required to remain in compliance with the SEC Family Office Exclusion, regardless of whether the Family Office actually seeks such exclusion. 78

74 CPO Family Office No-Action Letter, at 2.

75 CPO Family Office No-Action Letter, at 2.

76 Id

sory services are limited to a Family Office and/or Family Clients, as defined in 17 CFR 275.202(a)(11)(G)-1(d)(4). 77 Under each letter, the claimant is required to remain in compliance with the SEC Family Office Exclusion, regardless of whether the Family Office actually seeks such exclusion. 78

74 CPO Family Office No-Action Letter, at 2.

75 CPO Family Office No-Action Letter, at 2.

76 Id.

77 CPO Family Office No-Action Letter, at 2; CTA Family Office No-Action Letter, at 3.

78 Id.

In the six years since the rescission of § 4.13(a)(4) and the issuance of the CPO Family Office No-Action Letter, Commission staff has gained additional familiarity with the Family Office industry. This experience was gained through the continued availability of the CPO Family Office No-Action Letter and the subsequent issuance and utilization by industry of the CTA Family Office No-Action Letter, as well as through the consideration of and response to the few additional requests received by DSIO from Family Offices unable to meet the criteria of either of the global no-action letters. 79 The Commission notes that DSIO has received a total of more than 500 claims of the no-action relief provided by the CPO Family Office No-Action Letter and the CTA Family Office No-Action Letter.

79 See, e.g., CFTC Staff Letter 14-104 (Jun. 20, 2014), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-104.pdf (last retrieved July 31, 2018) (granting no-action relief to an entity providing advisory services to two families with longstanding and extensive financial and personal relationships)

-Action Letter and the CTA Family Office No-Action Letter.

Based on this experience, and pursuant to the Commission's instructions to its staff in 2012 to consider the future adoption of registration exemptions for Family Offices, the Commission is proposing to adopt for qualifying Family Offices CPO and CTA registration exemptions with terms similar to those in the CPO Family Office No-Action Letter and the CTA Family Office No-Action Letter by amending §§ 4.13 and 4.14. The Commission preliminarily believes that the familial relationships inherent in Family Offices provide a reasonable mechanism for protecting the interests of Family Clients and resolving disputes amongst them, and that the regulatory interest is lower than in typical, arms-length transactions where the CPO and the pool participants, or the CTA and its advisory clients, do not have close relationships and/or long-standing family history between them. The Commission also preliminarily believes that these characteristics are a reasonable substitute for the benefits and protections afforded by the Commission's regulatory regime for CPOs and CTAs.

Consistent with its statements in prior rulemakings impacting Family Offices, the Commission notes that Family Offices unable to meet the requirements of the exemptions proposed herein today may still avail themselves of the relief provided in § 4.13(a)(3), if they so qualify, or they may continue to seek relief on an individual, firm-by-firm basis through requests submitted to Commission staff.

D. Proposed Amendments Permitting General Solicitation by CPOs Pursuant to the JOBS Act of 2012.

at Family Offices unable to meet the requirements of the exemptions proposed herein today may still avail themselves of the relief provided in § 4.13(a)(3), if they so qualify, or they may continue to seek relief on an individual, firm-by-firm basis through requests submitted to Commission staff.

D. Proposed Amendments Permitting General Solicitation by CPOs Pursuant to the JOBS Act of 2012.

1. The JOBS Act of 2012, Regulation D, and Rule 144A

On April 5, 2012, Congress enacted the JOBS Act for the stated purpose of increasing American job creation and 80 Among other things, the JOBS Act amended various sections of the Securities Act of 1933 (“33 Act”) and required the SEC to revise its regulations to implement certain of the new JOBS Act provisions. Certain provisions of the JOBS Act expanded the availability and marketability of privately offered securities by loosening restrictions otherwise applicable to such offerings.

80 Public Law 112-106, 126 Stat. 306 (Apr. 5, 2012).

Section 5 of the 33 Act requires the registration of securities offerings with the SEC and compliance with prospectus delivery requirements, unless an exemption is available. 81 Section 4(a)(2) (formerly section 4(2)) of the 33 Act provides a statutory exemption from these requirements for “transactions by an issuer not involving any public offering.” 82 Rule 506 of the SEC's Regulation D, “Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act,” (Regulation D) was adopted to provide a regulatory analog to the statutory exemption. 83 Rule 506(b) of Regulation D 84 was originally adopted by the SEC as a non-exclusive safe harbor under the 33 Act section 4(a)(2) exemption for securities offerings by an issuer, without regard to dollar amount, to an unlimited number of “accredited investors,” as defined in § 230.501(a), 85 and to no more than 35 non-accredited investors who meet certain sophistication requirements

y exemption. 83 Rule 506(b) of Regulation D 84 was originally adopted by the SEC as a non-exclusive safe harbor under the 33 Act section 4(a)(2) exemption for securities offerings by an issuer, without regard to dollar amount, to an unlimited number of “accredited investors,” as defined in § 230.501(a), 85 and to no more than 35 non-accredited investors who meet certain sophistication requirements. 86 Offerings under § 230.506(b) are subject to the terms and conditions of §§ 230.501 and 230.502, including § 230.502(c), which states that neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation (General Marketing Restriction). 87

81 15 U.S.C. 77e.

82 15 U.S.C. 77d(a)(2).

83 Proposed Revision of Certain Exemptions from the Registration Provisions of the Securities Act of 1933 for Transactions involving Limited Offers and Sales, 33 Act Rel. No. 6339 (Aug. 7, 1981).

84 17 CFR 230.506(b).

85 17 CFR 230.501(a).

86 17 CFR 230.506(b).

87 17 CFR 230.501, 230.502; 230.502(c).

Through JOBS Act Section 201, Congress directed the SEC to amend 17 CFR 230.506 of Regulation D, to provide that the prohibition against general solicitation or general advertising in section 230.502(c) of title 17 shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers are accredited investors. 88 In 2012-2013, the SEC proposed and adopted amendments to § 230.506 consistent with the congressional directives of the JOBS Act. 89 By adding § 230.506(c), the SEC adopted an exemption that permits issuers to engage in general solicitation or advertising to offer and sell securities under Regulation D, provided that the issuer meets the terms and conditions of §§ 230.501 and 230.502(a) and (d), that all purchasers of the offered securities are accredited investors, and that the issuer takes reasonable steps to verify the accredited investor status of each purchaser

an exemption that permits issuers to engage in general solicitation or advertising to offer and sell securities under Regulation D, provided that the issuer meets the terms and conditions of §§ 230.501 and 230.502(a) and (d), that all purchasers of the offered securities are accredited investors, and that the issuer takes reasonable steps to verify the accredited investor status of each purchaser. 90 In other words, the General Marketing Restriction in § 230.502(c) is not applicable to securities offerings made pursuant to § 230.506(c).

88 JOBS Act, Public Law 112-206, sec. 201(a)(1), 126 Stat. 306, 313. Further, the JOBS Act amendments made clear that offers and sales exempt under Rule 506 (as revised pursuant to JOBS Act Section 201) shall not be deemed public offerings under the Federal securities laws as a result of general advertising or solicitation. Id. at 201(b) (adding 33 Act Section 4(b), 15 U.S.C. 77d(b)).

89 Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, 77 FR 54464 (Sept. 5, 2012) and 78 FR 44771 (Jul. 24, 2013) (JOBS Act Adopting Release).

90 17 CFR 230.506(c)(1)-(2). In the JOBS Act Adopting Release, the SEC stated that, “because the issuer has the burden of demonstrating that its offering is entitled to an exemption from the registration requirements of the [33 Act], it will be important for issuers and their verification service providers to retain adequate records regarding the steps taken to verify that a purchaser was an accredited investor.” 78 FR at 44779.

for issuers and their verification service providers to retain adequate records regarding the steps taken to verify that a purchaser was an accredited investor.” 78 FR at 44779.

The SEC explained that it was retaining the exemption for traditional Regulation D offerings in § 230.506(b), “for those issuers that either do not wish to engage in general solicitation in their Rule 506 offerings . . . or wish to sell privately to non-accredited investors who meet Rule 506(b)'s sophistication requirements.” 91 Further, the SEC emphasized that the “mandate [in JOBS Act Section 201(a)(1)] affects only [§ 230.506], and not Section 4(a)(2) offerings in general, which means that . . . an issuer relying on Section 4(a)(2) outside of the Rule 506(c) exemption will be restricted in its ability to make public communications to solicit investors for its offering because public advertising will continue to be incompatible with a claim of exemption under Section 4(a)(2).” 92 The SEC also adopted substantively similar amendments to Rule 144A 93 eliminating offering and marketing restrictions in the resale of certain securities sold to qualified institutional buyers (QIBs). 94

91 Id. at 44776.

92 78 FR at 44774.

93 17 CFR 230.144A.

94 Rule 144A is a non-exclusive safe harbor exemption from the registration and prospectus delivery requirements under the 33 Act for resales of certain securities to QIBs, as defined in § 230.144A(a)(1), provided that certain conditions are met. Through the JOBS Act, Congress directed the SEC to also adopt amendments to § 230.144A in order to permit general solicitation. JOBS Act, Pub. L. 112-206, sec. 201(a)(2), 126 Stat. 306, 313. In the JOBS Act Adopting Release, the SEC eliminated references to “offer” and “offeree” in Rule 144A, such that, today, the provision only requires that such resold securities “be sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB.” 78 FR at 44786.

olicitation. JOBS Act, Pub. L. 112-206, sec. 201(a)(2), 126 Stat. 306, 313. In the JOBS Act Adopting Release, the SEC eliminated references to “offer” and “offeree” in Rule 144A, such that, today, the provision only requires that such resold securities “be sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB.” 78 FR at 44786.

2. Impact of JOBS Act Amendments on CPOs and DSIO's 2014 JOBS Act Relief Letter

Under certain circumstances, persons relying on the new exemption in § 230.506(c) (506(c) Issuers) or reselling securities pursuant to Rule 144A (144A Resellers) may also be issuing interests in a commodity pool, the CPOs of which are subject to Commission regulation. Certain of the Commission's regulations applicable to CPOs currently contain restrictions on marketing and solicitation that conflict with the statutory and regulatory amendments effected and prompted by the passing of the JOBS Act. Specifically, certain persons who offer, market, or sell securities from 506(c) Issuers or 144A Resellers may be subject to Commission regulation under §§ 4.7 or 4.13(a)(3), both of which currently prohibit the general marketing and solicitation that is now permitted by the JOBS Act.

ers may be subject to Commission regulation under §§ 4.7 or 4.13(a)(3), both of which currently prohibit the general marketing and solicitation that is now permitted by the JOBS Act.

Section 4.7 provides relief from certain of the disclosure, periodic and annual reporting, and recordkeeping requirements in Part 4 of the Commission's regulations to registrants who file claims pursuant to § 4.7(d). 95 The relief in § 4.7(b) is available to: (1) A registered CPO who offers or sells pool participations solely to QEPs in an offering that qualifies for an exemption from the registration requirements of the 33 Act pursuant to section 4(2) (now section 4(a)(2)) of that Act or pursuant to Regulation S, or (2) any bank registered as a CPO in connection with a pool that is a collective trust fund whose securities are exempt from registration under the 33 Act pursuant to section 3(a)(2) of that Act and are offered or sold, without marketing to the public, solely to QEPs. 96 Section 4.13(a)(3) provides a registration exemption for CPOs that operate pools meeting the conditions enumerated in that regulation. One of those conditions, § 4.13(a)(3)(i), requires that interests in 97 Additionally, § 4.13(a)(3)(iii) requires that the CPO reasonably believes, at the time of purchase, that each person who participates in the exempt pool is, among other things, an accredited investor or QEP. 98

95 17 CFR 4.7; 17 CFR 4.7(d).

96 17 CFR 4.7(b).

97 17 CFR 4.13(a)(3)(i).

98 17 CFR 4.13(a)(3)(iii).

Generally, all commodity pools relying on the exemption in 33 Act section 4(a)(2), including pursuant to § 230.506(b), remain subject to prohibitions on general solicitation and general advertising, and such pools' CPOs may continue to claim relief under §§ 4.7(b) or 4.13(a)(3) in their current states. However, as noted above, amendments to securities regulations prompted by the JOBS Act and the requirements for exemptive relief under §§ 4.7(b) or 4.13(a)(3) are incompatible

2), including pursuant to § 230.506(b), remain subject to prohibitions on general solicitation and general advertising, and such pools' CPOs may continue to claim relief under §§ 4.7(b) or 4.13(a)(3) in their current states. However, as noted above, amendments to securities regulations prompted by the JOBS Act and the requirements for exemptive relief under §§ 4.7(b) or 4.13(a)(3) are incompatible. In response to the SEC's amendments, the Division issued CFTC Staff Letter 14-116, an exemptive letter clarifying how securities issuers and resellers, and their CPOs, could avail themselves of relief both in the securities and commodity interest sectors. 99

99 CFTC Staff Letter 14-116 (Sept. 9, 2014) (JOBS Act Relief Letter), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-116.pdf (last retrieved July 31, 2018) (JOBS Act Relief Letter).

Subject to certain conditions, the JOBS Act Relief Letter provides exemptive relief to claimants from the specific provisions of §§ 4.7(b) or 4.13(a)(3) outlined above, to make the relief provided by those regulations compatible with amended Regulation D and Rule 144A. Specifically, the CPOs of 506(c) Issuers and 144A Resellers that filed a notice with DSIO staff received exemptive relief from the requirements in § 4.7(b) that an offering be exempt pursuant to section 4(a)(2) of the 33 Act and offered solely to QEPs, and from the requirement in § 4.13(a)(3)(i) that the securities “be offered and sold without marketing to the public.” 100

t in § 4.13(a)(3)(i) that the securities “be offered and sold without marketing to the public.” 100

100 JOBS Act Relief Letter, p. 6. The Commission notes that § 4.13(a)(3) requires only that interests in an exempt pool be “exempt from registration” under the 33 Act, whereas § 4.7(b) has a more restrictive requirement that the pools qualify for exemption specifically under 33 Act section 4(a)(2). As noted above, the SEC emphasized, while amending Regulation D, that issuers claiming a 33 Act section 4(a)(2) exemption or § 230.506(b) would still be restricted in marketing or advertising to the public, based on the format of the congressional directive in the JOBS Act. 78 FR at 44774.

In an effort to harmonize the impact of the JOBS Act on, and to provide legal certainty with respect to the transactions engaged in by, dually-regulated CFTC and SEC entities, the Commission is proposing to adopt tailored amendments to §§ 4.7(b) and 4.13(a)(3) that would generally be consistent with the JOBS Act Relief Letter, as explained further below.

E. Proposed Exclusionary Relief for BDCs

1. The CPO Exclusion in § 4.5

Section 4.5 provides an exclusion for certain otherwise regulated persons from the CPO definition with respect to the operation of a “qualifying entity” specified in that regulation. 101 Examples of excluded persons include insurance companies regulated by any State 102 with respect to the offering of a separate account; 103 a bank regulated by a State or the United States 104 with respect to the assets of any trust, custodial account, or other separate unit of investment for which it is acting as a fiduciary and for which it has investment authority; 105 the trustee of a plan subject to title I of the Employee Retirement Income Security Act of 1974 (ERISA) 106 with respect to the operations of that plan; 107 and most relevant to the discussion herein, the operator of an investment company registered as such under the Investment Company Act of 1940, as amended (ICA), 108 with respect to the operated RIC

nd for which it has investment authority; 105 the trustee of a plan subject to title I of the Employee Retirement Income Security Act of 1974 (ERISA) 106 with respect to the operations of that plan; 107 and most relevant to the discussion herein, the operator of an investment company registered as such under the Investment Company Act of 1940, as amended (ICA), 108 with respect to the operated RIC. 109

101 17 CFR 4.5(a) and (b).

102 17 CFR 4.5(a)(2).

103 17 CFR 4.5(b)(2).

104 17 CFR 4.5(a)(3).

105 17 CFR 4.5(b)(3).

106 17 CFR 4.5(a)(4).

107 17 CFR 4.5(b)(4).

108 15 U.S.C. 80a-1, et seq.

109 17 CFR 4.5(a)(1) and (b)(1). As discussed, infra, § 4.5 lists the RIC as both the excluded person and the qualifying entity. Given that the Commission has previously determined that the RIC's investment adviser is the appropriate person to serve as the CPO of a RIC for regulatory purposes, the Commission is proposing herein to amend § 4.5(a)(1) to designate the investment adviser as the excluded entity. See CPO CTA Final Rule, 77 FR at 11259.

2. BDCs: Exempt Investment Companies Restricted in Their Use of Commodity Interests

BDCs are closed-end companies subject to regulation by the SEC under the ICA. Although BDCs meet the definition of an “investment company” under ICA section 3, 110 they are exempt from investment company registration by virtue of the filing of an election under section 54 of the ICA to be subject to various provisions of that act. 111 Despite not being registered as such, BDCs do operate in a manner similar to closed-end RICs and are subject to many of the same operational requirements of the ICA. 112 Most BDCs have external advisers, which generally must be registered with the SEC as investment advisers under the IA Act. 113 BDCs, like RICs, are subject to periodic examination by the SEC

to various provisions of that act. 111 Despite not being registered as such, BDCs do operate in a manner similar to closed-end RICs and are subject to many of the same operational requirements of the ICA. 112 Most BDCs have external advisers, which generally must be registered with the SEC as investment advisers under the IA Act. 113 BDCs, like RICs, are subject to periodic examination by the SEC. Further, BDCs must either have a class of equity securities that is registered under, or filed a registration statement for a class of equity securities pursuant to, the Securities Exchange Act of 1934, as amended, 114 which, in turn, requires filing with the SEC: Annual reports on Form 10-K, 115 quarterly reports on Form 10-Q, 116 current reports on Form 8-K, 117 and proxy solicitation statements in connection with annual stockholder meetings. 118 Additionally, almost all BDCs are listed for trading on national securities exchanges, and thus, are subject to exchange rules governing listed companies. 119 BDCs are also subject to certain regulations and corporate governance guidelines under the Sarbanes-Oxley Act of 2002. 120

110 15 U.S.C. 80a-3.

111 Id. at 80a-53. See id. at 80a-6(f).

112 See, e.g., 15 U.S.C. 80a-18 (providing asset coverage requirements among others subject to certain limitations); 15 U.S.C. 80a-61 (making section 18 of the ICA applicable to BDCs with certain modifications).

113 15 U.S.C. 80b-1, et seq.

114 15 U.S.C. 78a et seq.

115 17 CFR 249.310.

116 17 CFR 249.308a.

117 17 CFR 249.308.

118 17 CFR 240.14a-4.

119 See, e.g., NYSE Listed Company Manual, available at http://wallstreet.cch.com/LCM/ (last retrieved Apr. 25, 2018).

120 Public Law 107-204, 116 Stat. 745 (July 30, 2002) (codified in U.S.C. Titles 15, 18, 28, and 29).

BDCs are primarily engaged in investing in, and providing managerial assistance to, operating companies

116 17 CFR 249.308a.

117 17 CFR 249.308.

118 17 CFR 240.14a-4.

119 See, e.g., NYSE Listed Company Manual, available at http://wallstreet.cch.com/LCM/ (last retrieved Apr. 25, 2018).

120 Public Law 107-204, 116 Stat. 745 (July 30, 2002) (codified in U.S.C. Titles 15, 18, 28, and 29).

BDCs are primarily engaged in investing in, and providing managerial assistance to, operating companies. 121 Specifically, BDCs are required to invest at least 70% of their assets in “eligible portfolio companies,” 122 which are generally defined as small- or mid-sized U.S. companies that have no outstanding listed securities. 123 BDCs typically limit their use of commodity interests to interest rate and currency swaps, with some limited use of credit default swaps and other commodity interests. 124 Because BDCs primarily 125 applies, among other things, the limitations on the issuance of “senior securities” of section 18 of the ICA to BDCs, 126 subject to certain modifications to the limitation on multiple classes on senior security indebtedness and to the asset coverage requirements. BDCs, like registered closed-end funds, may issue senior securities that either represent indebtedness or stock ( e.g., preferred stock), subject to the limitations of ICA section 61. 127

121 15 U.S.C. 80a-2(a)(48).

122 Id. See also 15 U.S.C. 80a-54(a).

123 15 U.S.C. 80a-2(a)(46) (defining “eligible portfolio company”). See 17 CFR 270.2a-46 (providing additional criteria regarding “eligible portfolio companies”).

124 See Use of Derivatives by Registered Investment Companies, U.S. Securities and Exchange Commission, Division of Economic Risk and Analysis, available at https://www.sec.gov/files/derivatives12-2015.pdf (last retrieved July 31, 2018). Staff in the SEC's Division of Economic Risk and Analysis pulled a random sample of investment companies, including BDCs, to examine the use of derivatives by such companies. Within the sampled BDCs, none used derivatives, which appears to be Id.

125 15 U.S.C. 80a-60.

126 Id

conomic Risk and Analysis, available at https://www.sec.gov/files/derivatives12-2015.pdf (last retrieved July 31, 2018). Staff in the SEC's Division of Economic Risk and Analysis pulled a random sample of investment companies, including BDCs, to examine the use of derivatives by such companies. Within the sampled BDCs, none used derivatives, which appears to be Id.

125 15 U.S.C. 80a-60.

126 Id. at 80a-18.

127 Id. at 80a-18(a)(2), 80a-60.

3. CFTC Staff Letter 12-40 and the Proposed Amendments

In 2012, DSIO staff received correspondence requesting interpretative guidance from the Division regarding BDCs 128 and the availability of the exclusion from the CPO definition in § 4.5. 129 DSIO understood that the request was prompted generally by the inclusion of swaps within the jurisdiction of the Commission pursuant to the Dodd-Frank Act, as well as the specific addition of “swaps” to the list of commodity interests referenced within the CEA's definitions of “commodity pool” and CPO. 130

128 BDCs are subject to regulation under the ICA, but are not RICs.

129 17 CFR 4.5.

130 7 U.S.C. 1a(10) and 1a(11).

Following internal deliberations and further discussions with the requester, the Division determined to issue no-action relief, rather than interpretative guidance, which was accomplished on December 4, 2012, through the publication of CFTC Staff Letter 12-40 (BDC No-Action Letter). 131 In the BDC No-Action Letter, DSIO recited numerous ways in which BDCs are regulated in a manner similar to RICs under the ICA. 132 Pursuant to the terms of that letter, an entity claiming relief thereunder is subject to the following criteria: (1) The entity must have elected to be treated as a BDC under section 54 of the ICA 133 and will remain regulated as such, and (2) the entity has not marketed and will not market participations in the BDC to the public as investment in a commodity pool, or otherwise as an investment in a vehicle for the trading of commodity interests

claiming relief thereunder is subject to the following criteria: (1) The entity must have elected to be treated as a BDC under section 54 of the ICA 133 and will remain regulated as such, and (2) the entity has not marketed and will not market participations in the BDC to the public as investment in a commodity pool, or otherwise as an investment in a vehicle for the trading of commodity interests. 134 Additionally, the claimant must represent that it limits its use of commodity interests in the BDC consistent with the trading thresholds in § 4.5(c)(2)(iii)(A)-(B). 135 Finally, to claim the relief provided, an entity must file via email to DSIO the requisite notice, which is then electronically forwarded by CFTC staff to the NFA for inclusion in its public database, the Background Affiliation Status Information Center (BASIC). 136

131 CFTC Staff Letter 12-40, available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/12-40.pdf (Dec. 4, 2012) (last retrieved July 31, 2018).

132 Id.

133 15 U.S.C. 80a-53.

134 BDC No-Action Letter, at 3.

135 Specifically, the BDC must represent that it uses commodity interests solely for bona fide hedging purposes within the meaning and intent of §§ 1.3(z)(1) and 151.5 (17 CFR 1.3 and 151.5) (2012)); provided, however, that in addition, with respect to positions in commodity futures or commodity option contracts, or swaps which do not come within the meaning and intent of §§ 1.3(z)(1) and 151.5, as those provisions existed in 2012, the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of the BDC's portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; and, provided further, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in computing such five percent; or the aggregate net notional value of commodity futures, commodity options contracts

ion value of the BDC's portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; and, provided further, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in computing such five percent; or the aggregate net notional value of commodity futures, commodity options contracts, or swaps positions not used solely for bona fide hedging purposes within the meaning and intent of §§ 1.3 and 151.5 (17 CFR 1.3 and 151.5 (2012)), determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the BDC's portfolio, after taking into account unrealized profits and losses on any such position it has entered into.

On September 28, 2012, the U.S. District Court for the District of Columbia vacated §§ 1.3(z)(1) and 151.5 as part of the total vacation of the Commission's position limits rule. See Int'l Swaps & Derivatives Ass'n v. CFTC, 887 F.Supp.2d 259 (D.D.C. Sept. 28, 2012). This created some legal uncertainty as to the effect of the incorporation of those regulations in the CFTC's amendments to § 4.5. On October 12, 2012, DSIO issued interpretative guidance providing that § 4.5(c)(2)(iii)(A) and (B) continue to incorporate the substance of vacated §§ 1.3(z)(1) and 151.5 for purposes of those provisions only. See CFTC Staff Letter 12-19 (Oct. 12, 2012), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/12-19.pdf (last retrieved July 31, 2018). The Commission is not proposing to remove the cross-references to §§ 1.3(z)(1) and 151.5 (2012) at this time, but instead, intends to consider amendments to the “bona fide hedging” definition in § 4.5, when it adopts final rules replacing the vacated regulatory provisions.

136 NFA's BASIC website can be accessed at https://www.nfa.futures.org/basicnet.

Since the issuance of CFTC Staff Letter 12-40, the Commission has received 55 claims of relief

eferences to §§ 1.3(z)(1) and 151.5 (2012) at this time, but instead, intends to consider amendments to the “bona fide hedging” definition in § 4.5, when it adopts final rules replacing the vacated regulatory provisions.

136 NFA's BASIC website can be accessed at https://www.nfa.futures.org/basicnet.

Since the issuance of CFTC Staff Letter 12-40, the Commission has received 55 claims of relief. Division staff issued the BDC No-Action Letter because BDCs are subject to oversight by the SEC that is comparable to the regulation of RICs, and because BDCs use commodity interests primarily for bona fide hedging purposes. For these same reasons, the Commission has determined to exercise its authority to propose to amend § 4.5 to provide IAs of BDCs with comparable exclusionary relief.

F. Relief From § 4.27

1. History

The Commission adopted § 4.27 on November 16, 2011, 137 and subsequently amended it to implement Forms CPO-PQR and CTA-PR on February 24, 2012. 138 Section 4.27 generally requires each CPO that is registered or required to be registered as such to provide information regarding its operations as a CPO and each commodity pool that it operates. 139 It also requires each CTA that is registered or required to be registered as such to provide information, including financial information, regarding its operations and the pool assets that it directs. 140 The data collected is intended to, among other things, facilitate monitoring of systemically important impacts to the financial markets, as required by the Commission's obligations as part of the Financial Stability Oversight Council (FSOC). 141

137 Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, 76 FR 71128 (Nov. 16, 2011).

138 CPO CTA Final Rule, 77 FR at 11252.

139 17 CFR part 4, appendix A.

140 17 CFR part 4, appendix C.

141 CPO CTA Final Rule, 77 FR at 11267.

on's obligations as part of the Financial Stability Oversight Council (FSOC). 141

137 Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, 76 FR 71128 (Nov. 16, 2011).

138 CPO CTA Final Rule, 77 FR at 11252.

139 17 CFR part 4, appendix A.

140 17 CFR part 4, appendix C.

141 CPO CTA Final Rule, 77 FR at 11267.

2. Reporting Person Definition

The entities required to file a Form CPO-PQR for CPOs, or a Form CTA-PR for CTAs, are identified by the “reporting person” definition (Reporting Person) contained in § 4.27(b). 142 Pursuant to that definition, Reporting Persons include CPOs and CTAs that are registered or required to be registered under the CEA and the Commission's regulations thereunder. 143 After several filing cycles for both forms, the data revealed a substantial number of Reporting Persons that were filing Forms CPO-PQR and CTA-PR, but that had no other obligations under part 4 of the Commission's regulations. Specifically, the CPOs were operating pursuant to an exclusion or exemption from registration for all pools and accounts that they operated and/or directed, and the CTAs did not direct any client accounts, yet these CPOs and CTAs elected to maintain an active

142 17 CFR 4.27(b).

143 Id.

3. Current Commission Staff Letter Relief

To address this issue, DSIO issued several staff letters that provided exemptive relief from the requirement to file either a Form CPO-PQR or CTA-PR, for CPOs 144 and CTAs 145 that do not otherwise have reporting obligations under part 4 of the Commission's regulations. In so doing, DSIO believed that the data eliminated from the dataset “provide limited additional information . . . beyond that already available to the Commission as part of the registration process and the [person's] ongoing obligations as a registrant.” 146

144 CFTC Staff Letter 14-115 (Sept

CTAs 145 that do not otherwise have reporting obligations under part 4 of the Commission's regulations. In so doing, DSIO believed that the data eliminated from the dataset “provide limited additional information . . . beyond that already available to the Commission as part of the registration process and the [person's] ongoing obligations as a registrant.” 146

144 CFTC Staff Letter 14-115 (Sept. 8, 2014), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-115.pdf (last retrieved July 31, 2018) (providing relief from filing a Form CPO-PQR to CPOs that optionally registered as such with the Commission, but operated only pools for which they were excluded from the definition of “commodity pool operator,” and/or pursuant to a claim of exemption for registration with respect to the operated pools).

145 CFTC Staff Letter 15-47 (July 21, 2015), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31. 2018) (providing similar relief from filing a Form CTA-PR to CTAs who are registered as such with the Commission, but do not direct trading for any commodity interest accounts).

146 CFTC Staff Letter 14-115 at 2. See also CFTC Staff Letter 15-47 at 2 (“The same rationale applies in the instant scenario—requiring a registered CTA that does not direct any trading of commodity interest accounts to file a Form CTA-PR would similarly provide limited additional information regarding that CTA.”).

4. Proposing Amendments Consistent With Current Staff Letter Relief

The Commission is proposing today to amend § 4.27 in a manner consistent with the exemptive relief currently made available in CFTC Staff Letters 14-115 and 15-47, such that CPOs that operate only pools for which they are otherwise excluded from the CPO definition or exempt from CPO registration are not required to file a Form CPO-PQR, and CTAs that do not direct client accounts are not required to file a Form CTA-PR

oposing today to amend § 4.27 in a manner consistent with the exemptive relief currently made available in CFTC Staff Letters 14-115 and 15-47, such that CPOs that operate only pools for which they are otherwise excluded from the CPO definition or exempt from CPO registration are not required to file a Form CPO-PQR, and CTAs that do not direct client accounts are not required to file a Form CTA-PR. 147 As such, the Commission proposes to exclude these CPOs and CTAs from the Reporting Person definition in § 4.27(b).

147 It should be noted that similar to a discussion in CFTC Staff Letter 14-115, where a CPO is registered, but operates no pools, it is not required to file a Form CPO-PQR, as the terms of that form only require completion if the CPO also operates at least one pool. See CFTC Staff Letter 14-115, at 2.

5. Expanding Relief From § 4.27 to Additional Categories of CTAs

Section 4.14(a)(4) provides that a person is exempt from registering as a CTA, if that person is registered under the CEA and the Commission's regulations as a CPO, and the person's commodity trading advice is directed solely to the commodity pool or pools for which it is registered as a CPO. 148 Under § 4.14(a)(4), the person in question is registered as the CPO of a pool, and therefore, already has an obligation to file a Form CPO-PQR with respect to that pool, which requires the reporting of more information when compared to Form CTA-PR. 149 As such, the value of any data that would be collected by requiring that same Reporting Person to also file a Form CTA-PR is significantly outweighed by the burden to that entity of an extra filing, as well as any inefficiency resulting from the collecting and processing of duplicative data by NFA and Commission staff

ich requires the reporting of more information when compared to Form CTA-PR. 149 As such, the value of any data that would be collected by requiring that same Reporting Person to also file a Form CTA-PR is significantly outweighed by the burden to that entity of an extra filing, as well as any inefficiency resulting from the collecting and processing of duplicative data by NFA and Commission staff. As such, the Commission today also proposes to exclude from the Reporting Person definition under § 4.27(b) those CTAs who comply with the terms of the exemption from registration set forth in § 4.14(a)(4), and who limit their activities to those described by that exemption, but nevertheless elect to register as CTAs.

148 17 CFR 4.14(a)(4).

149 See 17 CFR part 4, appendix A and appendix C.

Further, consistent with the foregoing, the Commission also proposes to exclude from the Reporting Person definition any CTA that directs only the accounts of a pool that it operates as an exempt CPO. Specifically, § 4.14(a)(5) exempts from CTA registration any person that is exempt from CPO registration, if that person's commodity trading advice is directed solely to the pool for which it is exempt from CPO registration. 150 Consistent with the relief provided in CFTC Staff Letter 14-115, the exempt CPO of the pool would not be required to report on a Form CPO-PQR. 151 It is therefore incongruent to require the same person to report on Form CTA-PR with respect to the operation of a pool for which it is not required to file a Form CPO-PQR. Accordingly, the Commission proposes to remove the § 4.27 filing obligation for such CTAs by excluding from the Reporting Person definition any CTA that directs only the accounts of a pool for which it is exempt from registration as a CPO, and for which the CTA complies with the terms of a registration exemption under § 4.14(a)(5), but nevertheless elects to register as a CTA.

150 17 CFR 4.14(a)(5).

151 See CFTC Staff Letter 14-115 at 2.

II. Proposed Regulations

for such CTAs by excluding from the Reporting Person definition any CTA that directs only the accounts of a pool for which it is exempt from registration as a CPO, and for which the CTA complies with the terms of a registration exemption under § 4.14(a)(5), but nevertheless elects to register as a CTA.

150 17 CFR 4.14(a)(5).

151 See CFTC Staff Letter 14-115 at 2.

II. Proposed Regulations

A. Providing CPOs of Offshore Pools With Registration and Recordkeeping Relief Consistent With Advisory 18-96

1. New § 4.13(a)(4): The 18-96 Exemption

The Commission is proposing to amend § 4.13 by adding a new exemption from CPO registration in the currently reserved paragraph (a)(4) for qualifying persons operating commodity pools outside of the United States. The 18-96 Exemption would incorporate the vast majority of the requirements in the Advisory (with the exception of requiring CPO registration) and would be limited in application to each pool for which the person claims exemption from registration under paragraph (a)(4).

Proposed § 4.13(a)(4)(i) through (vi) explain the substantive conditions that must be met to be eligible for the exemption. Because the 18-96 Exemption is based on the location of the pool and/or its participants, the exemption requirements, much like the Advisory, would focus on the location or base of activities for the pool, including the location and source of any capital invested in the exempt offshore pool. The 18-96 Exemption would include the following parameters: (i) The pool is, and will remain, organized and operated outside of the United States; (ii) the pool will not hold meetings or conduct administrative activities within the United States; (iii) no shareholder of or other participant in the pool is or will be a U.S

the location and source of any capital invested in the exempt offshore pool. The 18-96 Exemption would include the following parameters: (i) The pool is, and will remain, organized and operated outside of the United States; (ii) the pool will not hold meetings or conduct administrative activities within the United States; (iii) no shareholder of or other participant in the pool is or will be a U.S. person; (iv) the pool will not receive, hold or invest any capital directly or indirectly contributed from sources within the United States; and (v) the person, the pool, and any person affiliated therewith will not undertake any marketing activity for the purpose, or that could reasonably be expected to have the effect, of soliciting participation in the pool from U.S. persons.

Consistent with its past prioritization of resources, the Commission intends that the requirements of the 18-96 Exemption would limit that exemption's availability to those persons operating commodity pools offshore, soliciting, accepting funds from, and managing assets from solely persons located

2. New § 4.13(a)(6): The Proposed Prohibition on Statutory Disqualifications

The Commission also proposes to amend § 4.13(a) by adding a new paragraph (a)(6). Proposed § 4.13(a)(6) would require any person claiming an exemption under paragraphs (a)(1) through (a)(5) of § 4.13 to represent that neither the person nor any of its principals is subject to any statutory disqualification under sections 8a(2) or 8a(3) of the Act, unless such disqualification arises from a matter which was previously disclosed in connection with a previous application, if such registration was granted, or which was disclosed more than thirty days prior to the claim of this exemption. As discussed above, the Commission believes preliminarily that this proposed amendment would provide additional customer protection because statutorily disqualified, unregisterable persons would no longer be permitted to claim the CPO exemptions under § 4.13(a)(1) through (a)(5).

f such registration was granted, or which was disclosed more than thirty days prior to the claim of this exemption. As discussed above, the Commission believes preliminarily that this proposed amendment would provide additional customer protection because statutorily disqualified, unregisterable persons would no longer be permitted to claim the CPO exemptions under § 4.13(a)(1) through (a)(5).

3. Amendments to § 4.13: Claiming the Proposed 18-96 Exemption

The Commission is proposing to amend § 4.13(b) to incorporate the 18-96 Exemption into the existing timing and claims process for other CPO exemptions, which the Commission preliminarily believes establishes a reasonable timing requirement for such claims. Once adopted, this provision would apply to persons claiming the 18-96 Exemption for newly established offshore commodity pools. If this rulemaking is adopted, the Commission intends to permit all existing claimants under Advisory 18-96 to claim the 18-96 Exemption.

As proposed, § 4.13(b)(2)(i) would require a person claiming the 18-96 Exemption to do so within 30 days of engaging in CPO activities that would make relief under § 3.10(c)(3)(i) unavailable to that person. Until that point in time, the person could freely rely on § 3.10(c)(3)(i), which is self-executing; such reliance would no longer be permitted, however, once the person is required to register or claim a CPO exemption with respect to a commodity pool that is marketed to U.S. persons, that contains funds belonging to U.S. persons, or that is otherwise operated in the U.S., its territories, or possessions. Therefore, proposed § 4.13(b)(2)(i) would require a person to claim the 18-96 Exemption within 30 days of such an occurrence, which the Commission preliminarily believes is sufficient time for a person to achieve compliance with the terms of the 18-96 Exemption.

4. Making the 18-96 Exemption Available on a Pool-by-Pool Basis

It is crucial to the proper functioning of the 18-96 Exemption that it be available on a pool-by-pool basis

uld require a person to claim the 18-96 Exemption within 30 days of such an occurrence, which the Commission preliminarily believes is sufficient time for a person to achieve compliance with the terms of the 18-96 Exemption.

4. Making the 18-96 Exemption Available on a Pool-by-Pool Basis

It is crucial to the proper functioning of the 18-96 Exemption that it be available on a pool-by-pool basis. This feature would permit claiming CPOs to be exempt with respect to their qualifying offshore commodity pools, while permitting them to maintain CPO registration for any commodity pools engaged in activities requiring such registration, i.e., the CPO has solicited or accepted funds from U.S. persons for investment in the commodity pool. This characteristic would effectively differentiate the 18-96 Exemption from the relief currently provided under both Advisory 18-96 and § 3.10(c)(3)(i). Therefore, the Commission proposes to adopt in § 4.13 a new paragraph (e)(3), which would establish the 18-96 Exemption as clearly available on a pool-by-pool basis. Specifically, the Commission proposes to add § 4.13(e)(3), which would permit a CPO to claim the 18-96 Exemption with respect to qualifying offshore pools and to simultaneously register as a CPO with respect to other pools that require registration or are otherwise not exempt pools, and also to amend § 4.13(e)(1) to note the addition of new § 4.13(e)(3).

5. Other Amendments to Miscellaneous Provisions in § 4.13

Without any additional amendment, current § 4.13(a)(6) (proposed to be renumbered as paragraph (a)(7)) contains a reference to § 4.13(a)(4), where the 18-96 Exemption is proposed to be housed

other pools that require registration or are otherwise not exempt pools, and also to amend § 4.13(e)(1) to note the addition of new § 4.13(e)(3).

5. Other Amendments to Miscellaneous Provisions in § 4.13

Without any additional amendment, current § 4.13(a)(6) (proposed to be renumbered as paragraph (a)(7)) contains a reference to § 4.13(a)(4), where the 18-96 Exemption is proposed to be housed. That reference is a holdover from the original exemption in § 4.13(a)(4) rescinded by the Commission in 2012, and would require any person claiming the 18-96 Exemption to furnish in written communication physically delivered or delivered through electronic transmission to each prospective participant in the pool: (A) A statement that the person is exempt from registration with the Commission as a commodity pool operator, and that therefore, unlike a registered commodity pool operator, it is not required to deliver a Disclosure Document and a certified annual report to participants in the pool; and (B) a description of the criteria pursuant to which it qualifies for such exemption from registration. 152 Section 4.13(a)(6)(ii) (proposed paragraph (a)(7)(ii)) would also require a person claiming any exemption thereunder to make these disclosures by no later than the time it delivers a subscription agreement for the pool to a prospective participant in the pool.

152 17 CFR 4.13(a)(6).

Because disclosure documents and certified annual reports are two of the most significant compliance burdens in part 4 of the Commission's regulations, it is critical that prospective participants be informed as to which, if any, customer protections apply to them and their investment, and as to what information they are entitled to receive from the CPO of their pool. Nonetheless, the Commission understands that currently, as proposed, only non-U.S. persons would be the participants in qualifying pools operated by persons claiming the 18-96 Exemption

s critical that prospective participants be informed as to which, if any, customer protections apply to them and their investment, and as to what information they are entitled to receive from the CPO of their pool. Nonetheless, the Commission understands that currently, as proposed, only non-U.S. persons would be the participants in qualifying pools operated by persons claiming the 18-96 Exemption. The Commission notes that such disclosures generally would be more informative or helpful to U.S. person investors in exempt pools, but inquires whether non-U.S. persons would expect or otherwise benefit from such disclosures, such that the reference to § 4.13(a)(4) should be retained. 153 The Commission specifically requests comment on this issue below.

153 Indeed, one of several comments received on the Commission's 2006 proposal to rescind Advisory 18-96 stated that, “it is unnecessary and confusing to the non-U.S. domiciled investors to explain why the sponsor is not registered with a U.S. futures regulator, and recommended that Advisory 18-96 be retained as an option for CPOs,” because of the required disclosures in § 4.13. See 72 FR at 1661.

The Commission is also amending § 4.13(a)(3)(iii)(E) to remove a cross-reference to rescinded § 4.13(a)(4) and replace it with “non-U.S. persons.” This amendment would effectively adopt the interpretation in CFTC Staff Letter 04-13, discussed supra, by permitting non-U.S. person participants, regardless of their financial sophistication, to invest in § 4.13(a)(3) exempt pools.

6. Preserving Advisory 18-96's Recordkeeping Location Relief With Amendments to § 4.23 and Certain Technical Amendments

As discussed above, the Commission has also determined to preserve Advisory 18-96's relief from the generally applicable recordkeeping location requirement in § 4.23

.S. person participants, regardless of their financial sophistication, to invest in § 4.13(a)(3) exempt pools.

6. Preserving Advisory 18-96's Recordkeeping Location Relief With Amendments to § 4.23 and Certain Technical Amendments

As discussed above, the Commission has also determined to preserve Advisory 18-96's relief from the generally applicable recordkeeping location requirement in § 4.23. Specifically, the Commission is proposing to amend § 4.23 by adding a new paragraph (c), such that registered onshore CPOs operating offshore commodity pools may seek relief from the requirement in that regulation that all books and records concerning the pool and CPO be kept at the CPO's main business office, provided that the person meets the requirements thereunder incorporated from the Advisory. Proposed § 4.23(c) contains exemptive relief for this specific type of CPO with regard to the offshore commodity pool(s) it operates, and contains the vast majority of the requirements for claiming the equivalent relief under Advisory 18-96. Because § 4.23 applies to CPOs registered or required to be registered, the Commission preliminarily believes it is not necessary to incorporate the prohibition on statutory disqualifications in the requirements for claiming this proposed exemptive relief.

The Commission is also proposing a series of organizational, non-substantive amendments to § 4.23, which the Commission preliminarily believes would clarify the existing recordkeeping location requirement applicable to all CPOs registered or required to be registered, would retain current exemptive relief provided by that regulation, and overall, would make the regulation easier to read and understand, even with the addition of the exemptive relief also being proposed today

mendments to § 4.23, which the Commission preliminarily believes would clarify the existing recordkeeping location requirement applicable to all CPOs registered or required to be registered, would retain current exemptive relief provided by that regulation, and overall, would make the regulation easier to read and understand, even with the addition of the exemptive relief also being proposed today. The Commission requests comment on whether these proposed amendments effectively incorporate in § 4.23 the recordkeeping location requirement relief currently found in Advisory 18-96, and whether the proposed technical amendments improve or otherwise alter that regulation or its application in any way.

B. Proposed Family Office Exemptions

Consistent with the CPO Family Office No-Action Letter, the Commission proposes to adopt for qualifying Family Offices a new regulatory exemption in § 4.13(a)(8). New § 4.13(a)(8) would provide relief from registration equivalent to the CPO Family Office No-Action letter, and the exemption's availability would be contingent on the Family Office: (1) Meeting the requirements for being deemed a Family Office pursuant to the SEC Family Office Exclusion in 17 CFR 275.202(a)(11)G-1; (2) restricting its investing and advisory activities solely to Family Clients, as defined in the SEC Family Office Exclusion; and (3) not engaging in the solicitation of persons other than Family Clients permitted under the SEC Family Office Exclusion. The prohibition against solicitation of non-Family Clients ensures that the exempt CPO is limiting its activities to those associated with the operation of a Family Office, as contemplated by the SEC Family Office Exclusion, which the Commission preliminarily believes would reduce its regulatory interest in such investment vehicles, when compared to other commodity pools.

As part of claiming exemptive relief under § 4.13, each person must file an annual notice under § 4.13(b)(4) confirming that the person remains exempt from registration

eration of a Family Office, as contemplated by the SEC Family Office Exclusion, which the Commission preliminarily believes would reduce its regulatory interest in such investment vehicles, when compared to other commodity pools.

As part of claiming exemptive relief under § 4.13, each person must file an annual notice under § 4.13(b)(4) confirming that the person remains exempt from registration. The Commission proposes to maintain the annual notice filing for all persons claiming relief under § 4.13, including persons claiming the new proposed exemption for Family Offices. The Commission believes that the notice requirement should ensure at least an annual assessment of whether the CPO of the Family Office remains eligible to rely upon the proposed exemption.

With respect to the CTA Family Office No-Action Letter, the Commission also proposes adding a new CTA registration exemption at § 4.14(a)(11) consistent with that relief. The Commission preliminarily believes that Family Offices that are also claiming relief from CPO registration under proposed § 4.13(a)(8) would already be eligible for relief from CTA registration by virtue of the existing exemption in § 4.14(a)(5), which provides an exemption from CTA registration for persons exempt from CPO registration that only advise a pool or pools for which the person is so exempt. 154 Therefore, the Commission is proposing to limit the new exemption in § 4.14(a)(11) to the advice provided to individual Family Clients. Consistent with most exemptions available under § 4.14, the Commission is also proposing that the new exemption for qualifying CTAs of Family Offices and Family Clients be self-executing, and is, therefore, not proposing to require a notice filing from claimants thereunder.

154 17 CFR 4.14(a)(5).

C. Proposed Amendments Consistent With the JOBS Act Relief Letter

The Commission proposes today to add to part 4 regulatory harmonization consistent with the JOBS Act Relief Letter, through specific amendments to §§ 4.7(b) and 4.13(a)(3)

Offices and Family Clients be self-executing, and is, therefore, not proposing to require a notice filing from claimants thereunder.

154 17 CFR 4.14(a)(5).

C. Proposed Amendments Consistent With the JOBS Act Relief Letter

The Commission proposes today to add to part 4 regulatory harmonization consistent with the JOBS Act Relief Letter, through specific amendments to §§ 4.7(b) and 4.13(a)(3). In § 4.7, the paragraph (b) introductory text currently sets forth the eligibility requirements for CPOs claiming relief thereunder with respect to certain pools they operate. The Commission proposes to remove the reference to “section 4(2) of [the 33] Act,” to remove references to the act of “offering” the § 4.7 exempt pool, and to delete the text, “without marketing to the public.” The Commission intends that these amendments would permit CPOs claiming the exemptive relief in § 4.7(b) to engage in general solicitation or marketing, if eligible to do so under their securities law exemptions. 155

155 The Commission notes that the amendments effectively give claiming CPOs the option to rely on the JOBS Act relief. CPOs continuing to offer traditional Regulation D issuances will still be able to rely on § 4.7(b) for relief as well.

ditional Regulation D issuances will still be able to rely on § 4.7(b) for relief as well.

Additionally, the Commission is proposing to break out the eligible claimants of the relief in § 4.7(b) into two new paragraphs, paragraphs (b)(1)(i) and (b)(1)(ii), and to renumber the remaining subparagraphs of § 4.7(b). These changes are intended to improve the readability and clarity of that regulation. With today's proposed amendments, the operative requirements remaining in § 4.7(b) for non-bank CPOs claiming relief thereunder are that: (1) The CPO must be registered with respect to the exempt pool/offering; (2) participations in the exempt pool must be exempt from the Securities Act and/or offered and sold pursuant to Regulation D (under either § 230.506(b) or 230.506(c)) or resold pursuant to Rule 144A, 17 CFR 230.144A, or offered pursuant to Regulation S; 156 (3) the participations must be sold solely to QEPs; and (4) the registered CPO must file the required notice and otherwise comply with the requirements in § 4.7(d) 157 in operating the exempt pool. The Commission preliminarily believes that the amendments, as proposed, would achieve its goal of permitting commodity pools operated by CPOs claiming relief under § 4.7(b) to avail themselves of the JOBS Act relief adopted by the SEC, while retaining the other requirements currently set forth in that regulation.

156 17 CFR 230.901-230.904.

157 17 CFR 4.7(d).

The Commission is also proposing similar amendments to the registration exemption provided to eligible CPOs in § 4.13(a)(3). In § 4.13(a)(3)(i), the Commission proposes to delete the language, “such interests are offered and sold without marketing to the public in the United States,” and to replace it with a conditional statement

regulation.

156 17 CFR 230.901-230.904.

157 17 CFR 4.7(d).

D. Proposed BDC Exclusion

The Commission proposes to amend § 4.5 to include investment advisers (as defined above, IAs) of BDCs under paragraph (a) as a type of entity that shall be excluded from the CPO definition with respect to the operation of a “qualifying entity,” 158 and to include BDCs as a type of “qualifying entity” under paragraph (b), for which an exclusion may be so claimed. 159 Because BDCs are similarly situated to RICs, the Commission preliminarily believes that IAs of BDCs should be subject to the same operational requirements as CPOs of RICs, an approach consistent with that taken by Commission staff through the BDC No-Action Letter. Because the CPOs of both RICs and BDCs would be their IAs, the Commission also proposes revising § 4.5(a)(1) 160 to refer to the registered IA, rather than the investment company itself, as the entity claiming the CPO exclusion. Because of the similarities between BDCs and RICs, the Commission preliminarily believes IAs of BDCs should be required to reaffirm their § 4.5 exclusion claim on an annual basis, which is consistent with the existing requirements for IAs of RICs under § 4.5(c)(5). 161 Finally, the Commission concludes that the existing language in § 4.6 should be sufficient to provide exclusionary relief for IAs of BDCs with respect to the CTA definition without additional proposed amendments. 162

158 17 CFR 4.5(a).

159 17 CFR 4.5(b).

160 17 CFR 4.5(a)(1).

161 17 CFR 4.5(c)(5).

162 17 CFR 4.6

istent with the existing requirements for IAs of RICs under § 4.5(c)(5). 161 Finally, the Commission concludes that the existing language in § 4.6 should be sufficient to provide exclusionary relief for IAs of BDCs with respect to the CTA definition without additional proposed amendments. 162

158 17 CFR 4.5(a).

159 17 CFR 4.5(b).

160 17 CFR 4.5(a)(1).

161 17 CFR 4.5(c)(5).

162 17 CFR 4.6. Section 4.6 provides an exclusion from the CTA definition to, among others, a person excluded from the CPO definition by § 4.5, whose commodity interest advisory activities are solely incidental to its operation of those trading vehicles for which § 4.5 provides relief, i.e., in this case, an IA of a BDC. Id.

E. § 4.27 Relief

The Commission proposes to amend § 4.27 to exclude certain registered CPOs and CTAs from the definition of “reporting person” in § 4.27(b). Specifically, the Commission proposes to place the definition of “reporting person” in a new paragraph (b)(1) and to add a new paragraph § 4.27(b)(2) that would limit the application of the “reporting person” definition, such that the registered CPOs and CTAs discussed above would no longer be required to report on Forms CPO-PQR and CTA-PR, as applicable. The Commission is also proposing to revise the title of § 4.27 to more accurately reflect the substance of the section.

III. Request for Comments

The Commission requests comment on all aspects of the Proposal. Additionally, the Commission would appreciate consideration of the following specific questions.

A. Advisory 18-96 and the Proposed 18-96 Exemption

1. Should CPOs claiming the 18-96 Exemption be required to disclose the exemption to participants in their offshore commodity pools? Would such disclosure be meaningful to offshore investors? If the Commission were to require such disclosure, what timing requirement should be established? Should it be identical to, or different from, the timing requirement proposed in the NPRM for claiming the 18-96 Exemption?

aiming the 18-96 Exemption be required to disclose the exemption to participants in their offshore commodity pools? Would such disclosure be meaningful to offshore investors? If the Commission were to require such disclosure, what timing requirement should be established? Should it be identical to, or different from, the timing requirement proposed in the NPRM for claiming the 18-96 Exemption?

2. Do the proposed amendments to § 4.13(e) clearly establish that the 18-96 Exemption is available to CPOs for each individual commodity pool meeting the terms therein, without regard to the claimant's registration status? If not, how could the amendments be improved?

3. The Commission also requests comment on the prohibition on statutory disqualifications proposed in § 4.13 generally, the impact of adopting this provision on industry participants and currently exempt CPOs, and also, on what, if any, other statutory disqualifications should be permissible for exempt CPOs and their principals. In particular, comments should address any or all of the following questions: What are the concerns and benefits associated with the expansion of the prohibition on statutory disqualifications to the CPO registration exemptions set forth in § 4.13(a)(1), (a)(2), (a)(3), and (a)(5), or proposed to be set forth in § 4.13(a)(4)? Do the limited exceptions that would permit certain statutory disqualifications successfully address any unintended consequences of adding the prohibition to § 4.13, while still providing a base level of customer protection by preventing statutorily disqualified individuals from legally operating exempt commodity pools? Generally, how should the Commission handle the implementation of the statutory disqualification prohibition? Specifically, how should the prohibition apply to current claimants under § 4.13? How much time should the Commission allow for filing updated exemption claims subject to the prohibition? How much time should the Commission allow for an exempt CPO to replace statutorily disqualified pri

s? Generally, how should the Commission handle the implementation of the statutory disqualification prohibition? Specifically, how should the prohibition apply to current claimants under § 4.13? How much time should the Commission allow for filing updated exemption claims subject to the prohibition? How much time should the Commission allow for an exempt CPO to replace statutorily disqualified principals, in order to maintain eligibility for a § 4.13 exemption?

4. When a qualifying CPO is transitioning from reliance upon § 3.10(c)(3)(i) to the 18-96 Exemption, is 30 days sufficient time in which to claim the 18-96 Exemption for qualifying offshore pools? Generally, please provide comment on whether the interaction between § 3.10(c)(3)(i) and the 18-96 Exemption, as proposed, is understood.

5. Is the language in proposed § 4.13(e)(3) effective to make the 18-96 Exemption available on a pool-by-pool basis, such that a claim for the 18-96 Exemption would be able to co-exist with a simultaneous CPO registration or even other exemption claims? If not, why not?

6. Should the Commission adopt all of the proposed requirements for the relief under proposed § 4.23(c)? Which requirements could be dropped? Why? Are there additional or different conditions to this relief that the Commission should consider adopting?

B. Proposed Family Office Exemptions

7. Should CPOs of Family Offices organized as commodity pools be required to annually recertify their eligibility for the proposed exemption under § 4.13(a)(8)? What are the costs and burdens that an annual notice requirement would impose?

8. Information on BASIC is provided to the public as a means of ensuring that basic information regarding a person's registration status with the Commission is readily available. Given that the persons claiming the proposed CPO exemption for the operation of Family Offices are proposed to be prohibited from soliciting non-Family Client participants, should notices filed by

ment would impose?

9. Does the proposed bifurcation of the CTA relief provided to (a) CTAs of Family Offices organized as commodity pools, and (b) CTAs of individual Family Clients clearly and effectively provide relief from registration for CTAs that advise Family Offices in their capacity as an exempt CPO and/or as a CTA to individual Family Clients? Is there a clearer or more advantageous way to effectuate such relief?

10. Should a notice be required in order to claim the proposed exemption in § 4.14(a)(11) for CTAs of Family Clients? If so, should such CTAs be required to recertify eligibility for such exemption on an annual, or longer term, basis? What are the costs and burdens that such an annual notice requirement would impose on those CTAs?

C. Proposed Amendments Consistent With the JOBS Act Relief Letter

11. Do the amendments to §§ 4.7(b) and 4.13(a)(3) effectively incorporate in 17 CFR part 4 the general marketing and solicitation permitted by the JOBS Act, consistent with the JOBS Act Relief Letter? Are there additional amendments the Commission should consider that would ensure this relief is completely added to the part 4 regulatory regime?

D. Proposed Adoption and Expansion of Exemptive Letter Relief From § 4.27 Filings

12. Are there any additional classes of registered CPOs or CTAs that should be excluded from the definition of “Reporting Person” in § 4.27(b)? If yes, please identify the class or classes, and explain why they should be so excluded.

IV. Related Matters

f is completely added to the part 4 regulatory regime?

D. Proposed Adoption and Expansion of Exemptive Letter Relief From § 4.27 Filings

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) requires Federal agencies, in promulgating regulations, to consider whether the rules 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. Each Federal agency is required to conduct an initial and final regulatory flexibility analysis for each rule of general applicability for which the agency issues a general notice of proposed rulemaking. 163

163 5 U.S.C. 601 et seq.

The regulatory amendments proposed by the Commission in this release would affect only persons registered or required to be registered as CPOs and CTAs, persons claiming exemptions from registration as such, and certain persons excluded from the CPO definition. 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. 164 With respect to CPOs, the Commission previously has determined that a CPO is a small entity for purposes of the RFA, if it meets the criteria for an exemption from registration under § 4.13(a)(2). 165 Because these proposed regulations generally apply to persons registered or required to be registered as CPOs with the Commission, and/or provide relief to qualifying persons from registration as such, as well as from related compliance burdens, the RFA is not applicable to this Proposal with respect to CPOs

e RFA, if it meets the criteria for an exemption from registration under § 4.13(a)(2). 165 Because these proposed regulations generally apply to persons registered or required to be registered as CPOs with the Commission, and/or provide relief to qualifying persons from registration as such, as well as from related compliance burdens, the RFA is not applicable to this Proposal with respect to CPOs.

164 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).

165 Id. at 18619-20. Section 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).

Regarding CTAs, the Commission has previously considered whether such registrants should be deemed small entities for purposes of the RFA on a case-by-case basis, in the context of the particular Commission regulation at issue. 166 As certain of these registrants may be small entities for purposes of the RFA, the Commission considered whether this rulemaking would have a significant economic impact on such registrants.

166 See id. at 18620.

e id. at 18620.

The portions of this Proposal directly impacting CTAs propose a registration exemption consistent with DSIO's CTA Family Office No-Action Letter, as well as expanded exemptive relief from the Form CTA-PR filing requirement in § 4.27 for certain categories of CTAs. These proposed amendments are not expected to impose any new burdens on market participants or Commission registrants. Rather, to the extent that this Proposal provides an exemption from the requirement to register as a CTA or from the Form CTA-PR filing requirement in § 4.27, the Commission preliminarily believes it is reasonable to infer that such exemptions would be much less burdensome to those persons than either CTA registration or the preparation and filing of Form CTA-PR. In fact, the Commission has not proposed herein to require a notice filing for either the proposed exemption for CTAs of Family Offices and Family Clients, or the expanded relief proposed for certain CTAs under § 4.27. 167 Consequently, the Commission does not expect small entities to incur any additional costs as a result of the Proposal, as applicable to CTAs.

167 The Commission notes that it requests comment on whether the Commission should adopt regulations requiring CPOs of Family Offices to file a notice to claim the proposed exemption under § 4.13(a)(8) and to annually affirm that claim, and/or requiring CTAs of Family Offices to file a notice to claim the proposed exemption in § 4.14(a)(11). See supra pt. III, Request for Comments.

claim the proposed exemption in § 4.14(a)(11). See supra pt. III, Request for Comments.

Similarly, the Commission preliminarily does not believe that the benefits associated with the exemption from CTA registration for CTAs of Family Offices and Family Clients, or the expanded relief from the requirement to prepare and file Form CTA-PR, will result in a significant economic impact on small CTAs. The regulatory obligations associated with CTA registration and compliance are not significantly burdensome, being limited to the completion of a registration application, the preparation and distribution of a disclosure document (if required), the maintenance of certain books and records, and the annual completion of Form CTA-PR, which consists of two questions with several subparts. Although relief from these obligations is beneficial to small CTAs, the Commission preliminarily believes that this does not rise to the level of significant economic impact.

Therefore, the Commission has preliminarily determined that, to the extent that the Proposal affects CTAs, it will not create a significant economic impact on a substantial number of small entities. Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that these proposed amendments, if adopted, will not have a significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

1. Overview

The Paperwork Reduction Act (PRA) imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA. 168 Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a

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

The Proposal amends two collections of information for which the Commission has previously received control numbers from OMB

n requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA. 168 Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a

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

The Proposal amends two collections of information for which the Commission has previously received control numbers from OMB. The first collection of information is, “Rules Relating to the Operations and Activities of Commodity Pool Operators and Commodity Trading Advisors and to Monthly Reporting by Futures Commission Merchants, OMB control number 3038-0005” (Collection 3038-0005). Collection 3038-0005 primarily accounts for the burden associated with part 4 of the Commission's regulations that concern compliance obligations generally applicable to CPOs and CTAs, as well as certain enumerated exemptions from registration as such and exclusions from those definitions, and available relief from compliance with certain regulatory requirements. The Commission is proposing to amend this collection to reflect the notices proposed to be required to claim certain of the registration exemptions and the CPO exclusion proposed herein, as well as the expected reduction in the number of registered CPOs and CTAs filing Forms CPO-PQR and CTA-PR, pursuant to the proposed revisions to § 4.27.

The Commission also proposes to amend a second collection entitled, “Part 3—Registration, OMB control number 3038-0023” (Collection 3038-0023), which pertains to the registration of intermediaries generally, to reduce the number of persons registering as CPOs and CTAs as a result of the regulatory amendments proposed herein. Therefore, the Commission is proposing adjustments to each of these collections accordingly. The responses to these collections of information are mandatory

ation, OMB control number 3038-0023” (Collection 3038-0023), which pertains to the registration of intermediaries generally, to reduce the number of persons registering as CPOs and CTAs as a result of the regulatory amendments proposed herein. Therefore, the Commission is proposing adjustments to each of these collections accordingly. The responses to these collections of information are mandatory.

The collections of information in the Proposal would make available to eligible persons: (1) The 18-96 Exemption in proposed § 4.13(a)(4), which incorporates the majority of the relief provided by Advisory 18-96, and which would exempt from CPO registration qualifying CPOs with regard to their offshore pools; (2) the Advisory 18-96 recordkeeping location relief for qualifying, registered CPOs, which is proposed to be added to § 4.23; (3) the exemptions from CPO and CTA registration for qualifying Family Offices in proposed §§ 4.13(a)(8) and 4.14(a)(11); (4) the proposed expansion of the exclusion in § 4.5 for IAs of BDCs; and (5) the proposed exemptive relief made available through amendments to the Reporting Person definition in § 4.27(b), such that qualifying CPOs and CTAs no longer have to file Forms CPO-PQR or CTA-PR.

In each instance, eligible persons have the option to elect the proposed registration or compliance exemption or exclusion if they are so qualified, but have no obligation to do so. For this reason, except to the extent that the Commission is amending Collection 3038-0005 for PRA purposes to reflect these alternatives, and Collection 3038-0023 to reduce the number of persons registering as CPOs or CTAs, today's Proposal is not expected to impose any significant new burdens on CPOs or CTAs

liance exemption or exclusion if they are so qualified, but have no obligation to do so. For this reason, except to the extent that the Commission is amending Collection 3038-0005 for PRA purposes to reflect these alternatives, and Collection 3038-0023 to reduce the number of persons registering as CPOs or CTAs, today's Proposal is not expected to impose any significant new burdens on CPOs or CTAs. Rather, to the extent that the proposed amendments provide registration exemptions or definitional exclusions, and/or alternatives to comprehensive compliance with Commission regulations, through the adoption of amendments consistent with existing exemptive and no-action letter relief, it is reasonable for the Commission to infer that the proposed amendments will generally prove to be less burdensome for persons eligible to claim the proposed alternative relief.

2. Revisions to the Collections of Information

a. OMB Control Number 3038-0005

Collection 3038-0005 is currently in force with its control number having been provided by OMB, and it was renewed recently on March 14, 2017. 169 As stated above, Collection 3038-0005 governs responses made pursuant to part 4 of the Commission's regulations, pertaining to the operations of CPOs and CTAs. Generally, under Collection 3038-0005, the estimated average time spent per response will not be altered; however, the Commission has made adjustments, discussed below, to the collection to account for new and/or lessened burdens expected under the NPRM due to persons claiming the proposed registration exemptions or exclusion and proposed relief.

169 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=201701-3038-005 (last retrieved July 31, 2018)

ts, discussed below, to the collection to account for new and/or lessened burdens expected under the NPRM due to persons claiming the proposed registration exemptions or exclusion and proposed relief.

169 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=201701-3038-005 (last retrieved July 31, 2018).

For example, the Commission estimates that the number of persons responding to the portion of the collection associated with § 4.13(b)(1) (the requirement to file a claim for an exemption under that section) will increase by at least the number of persons currently claiming the CPO Family Office No-Action Letter, i.e., 200 CPOs. 170 The Commission also preliminarily believes that there may be increased notice filings under § 4.13(b)(1), if the 18-96 Exemption is adopted as proposed. Due to the flexibility of the proposed 18-96 Exemption as compared to § 3.10(c)(3)(i), its adoption may cause more CPOs to claim relief from registration on a pool-by-pool basis through the 18-96 Exemption with respect to their offshore pools, rather than with respect to their operations as a whole.

170 No adjustments are proposed to be made to account for the CTA Family Office No-Action Letter claims (100 claims received) because the Commission has not proposed a filing requirement for that new exemption. Rather, like the majority of the exemptions in § 4.14, the Commission has proposed to add that relief as a self-executing exemption in § 4.14, though it has requested comment on this feature of the Proposal.

Conversely, no adjustments need to be made to Collection 3038-0005 to account for the proposed JOBS Act amendments because persons

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