35820 Federal Register / Vol. 85, No. 114 / Friday, June 12, 2020 / Proposed Rules

List of Subjects in 14 CFR Part 71 COMMODITY FUTURES TRADING Mail: Send to Christopher Kirkpatrick, COMMISSION Secretary of the Commission, Airspace, Incorporation by reference, Commodity Futures Trading Navigation (air). 17 CFR Part 3 Commission, Three Lafayette Center, 1155 21st Street NW, Washington, DC The Proposed Amendment RIN 3038–AE46 20581. In consideration of the foregoing, the Exemption From Registration for Hand Delivery/Courier: Same as Mail Federal Aviation Administration Certain Foreign Persons Acting as above. proposes to amend 14 CFR part 71 as Commodity Pool Operators of Offshore Please submit your comments using follows: Commodity Pools only one of these methods. To avoid possible delays with mail or in-person PART 71—DESIGNATION OF CLASS A, AGENCY: Commodity Futures Trading deliveries, submissions through the B, C, D, AND E AIRSPACE AREAS; AIR Commission. CFTC Comments Portal are encouraged. TRAFFIC SERVICE ROUTES; AND ACTION: Notice of proposed rulemaking; All comments must be submitted in REPORTING POINTS reopening of comment period. English, or if not, accompanied by an English translation. Comments will be SUMMARY: The Commodity Futures ■ 1. The authority citation for part 71 posted as received to https:// Trading Commission (Commission) is continues to read as follows: comments.cftc.gov. You should submit proposing to amend the conditions in only information that you wish to make Authority: 49 U.S.C. 106(f), 106(g); 40103, Commission regulation 3.10(c) under publicly available. If you wish the 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, which a person located outside of the Commission to consider information 1959–1963 Comp., p. 389. United States engaged in the activity of that may be exempt from disclosure a commodity pool operator (CPO; each § 71.1 [Amended] under the Freedom of Information Act person located outside of the United (FOIA), a petition for confidential ■ 2. The incorporation by reference in States a non-U.S. CPO) in connection treatment of the exempt information 14 CFR 71.1 of FAA Order 7400.11D, with commodity interest transactions on may be submitted according to the Airspace Designations and Reporting behalf of persons located outside the procedures established in § 145.9 of the Points, dated August 8, 2019 and United States (collectively, an offshore Commission’s regulations.1 effective September 15, 2019, is commodity pool or offshore pool) would The Commission reserves the right, amended as follows: qualify for an exemption from CPO but shall have no obligation, to review, registration and regulation with respect Paragraph 6009 Colored Federal Airways. pre-screen, filter, redact, refuse or to that offshore pool. Specifically, remove any or all of your submission * * * * * through amendments to Commission from https://comments.cftc.gov that it regulation 3.10(c), the Commission is A–1 [Amended] may deem to be inappropriate for proposing that non-U.S. CPOs may From Abbotsford, BC Canada NDB, to publication, such as obscene language. claim an exemption from registration All submissions that have been redacted Victoria, BC Canada NDB, Sandspit, BC, with respect to its qualifying offshore Canada, NDB 96 miles 12 AGL, 102 miles 35 or removed that contain comments on commodity pools, while maintaining the merits of the rulemaking will be MSL, 57 miles 12 AGL, via Sitka, AK, NDB; another exemption from registration, 31 miles 12 AGL, 50 miles 47 MSL, 88 miles retained in the public comment file and relying on an exclusion, or registering as will be considered as required under the 20 MSL, 40 miles 12 AGL, Ocean Cape, AK, a CPO with respect to the operation of ° Administrative Procedure Act and other NDB; INT Ocean Cape NDB 283 and Orca other commodity pools. The Bay, AK, NDB 106° bearings; Orca Bay NDB; applicable laws, and may be accessible Commission is also proposing to add a under FOIA. From Takotna River, AK, NDB; 24 miles 12 safe harbor by which a non-U.S. CPO of AGL, 53 miles 55 MSL; 51 miles 40 MSL, 25 an offshore commodity pool may rely FOR FURTHER INFORMATION CONTACT: miles 12 AGL, North River, AK, NDB; 17 upon the proposed exemption in Joshua B. Sterling, Director, (202) 418– miles 12 AGL, 89 miles 25 MSL, 17 miles 12 Commission regulation 3.10(c) if they 6056, [email protected], Amanda Lesher AGL, to Fort Davis, AK, NDB. Excluding that satisfy enumerated factors related to the Olear, Deputy Director, (202) 418–5283, airspace within Canada. operation of the offshore commodity [email protected], or regarding Section III * * * * * pool. Additionally, the Commission is of this Notice of Proposed Rulemaking, Frank Fisanich, Chief Counsel, (202) G–7 [Removed] proposing to permit certain U.S. control affiliates of a non-U.S. CPO to 418–5949, [email protected], Division * * * * * contribute capital to such CPO’s of Swap Dealer and Intermediary Oversight, Commodity Futures Trading G–11 [Removed] offshore pools as part of the initial Commission, Three Lafayette Centre, * * * * * capitalization without rendering the non-U.S. CPO ineligible for the 1155 21st Street NW, Washington, DC Issued in Washington, DC, on June 3, 2020. exemption from registration under 20581. Scott M. Rosenbloom, Commission regulation 3.10. SUPPLEMENTARY INFORMATION: Acting Manager, Rules and Regulations DATES: Comments must be received on I. Background Group. or before August 11, 2020. [FR Doc. 2020–12700 Filed 6–11–20; 8:45 am] ADDRESSES: Section 1a(11) of the Commodity You may submit comments, 2 BILLING CODE 4910–13–P identified by RIN 3038–AE46, by any of Exchange Act (CEA or Act) defines the the following methods: term ‘‘commodity pool operator’’ as any CFTC Comments Portal: http:// comments.cftc.gov. Select the ‘‘Submit 1 17 CFR 145.9. Commission regulations referred to herein are found at 17 CFR Chapter I (2019). Comments’’ link for this rulemaking and 2 See 7 U.S.C. 1, et seq. (2019). The CEA and the follow the instructions on the Public Commission’s regulations are accessible through the Comment Form. Commission’s website, https://www.cftc.gov.

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person 3 engaged in a business that is of must determine that the agreements, 3. The commodity interest transaction the nature of a commodity pool, contracts, or transactions undertaken by is submitted for clearing through a investment trust, syndicate, or similar the exempt CPO should not require registered futures commission form of enterprise, and who, with registration and that the exemption from merchant.16 respect to that commodity pool, solicits, registration would be consistent with A person acting in accordance with accepts, or receives from others, funds, the public interest and the Act.10 The the 3.10 Exemption remains subject to securities, or property, either directly or Commission must further determine the antifraud provisions of CEA section through capital contributions, the sale of that the agreement, contract, or 4o,17 but is otherwise not required to stock or other forms of securities, or transaction will be entered into solely comply with those provisions of the otherwise, for the purpose of trading in between appropriate persons and that it CEA or Commission regulations commodity interests.4 CEA section will not have a material adverse effect applicable to any person registered in 1a(10) defines a ‘‘commodity pool’’ as on the ability of the Commission or any such intermediary capacity or persons any investment trust, syndicate, or contract market to discharge its required to be so registered.18 The 3.10 similar form of enterprise operated for regulatory or self-regulatory duties Exemption provides that it is available the purpose of trading in commodity under the Act.11 The term ‘‘appropriate to non-U.S. CPOs whose activities, in interests.5 CEA section 4m(1) generally person’’ as used in section 4(c) includes connection with any commodity interest requires each person who satisfies the a commodity pool formed or operated transaction executed bilaterally or made CPO definition to register as such with by a person subject to regulation under on or subject to the rules of any the Commission.6 With respect to CPOs, the Act.12 The Commission has designated contract market or swap the CEA also authorizes the previously interpreted the clause execution facility, are confined to acting Commission, acting by rule or ‘‘subject to regulation under the Act’’ as on behalf of offshore commodity regulation, to include within or exclude including persons who are exempt from pools.19 This exemption was first from the term ‘‘commodity pool registration or excluded from the adopted in 2007 and was based on a operator’’ any person engaged in the definition of a registration category.13 long-standing no-action position business of operating a commodity pool Part 3 of the Commission’s regulations articulated by the Commission’s Office if the Commission determines that the governs the registration of of General Counsel in 1976.20 rule or regulation will effectuate the intermediaries engaged in, inter alia, the In adopting the final rule amending purposes of the CEA.7 offering and selling of, and the Commission regulation 3.10, the Additionally, CEA section 4(c), in provision of advice concerning, all Commission agreed with commenters relevant part with respect to this commodity interest transactions. who cited its longstanding policy of proposal, provides that the Commission, Commission regulation 3.10 establishes focusing ‘‘customer protection activities to promote responsible economic or the procedure that intermediaries, upon domestic firms and upon firms financial innovation and fair including CPOs, must use to register soliciting or accepting orders from competition, by rule, regulation, or with the Commission.14 Commission domestic users of the futures order, after notice and opportunity for regulation 3.10 also establishes certain markets.’’ 21 The Commission further hearing, may exempt, among other exemptions from registration.15 In stated that the protection of non-U.S. things, any person or class of persons particular, Commission regulation customers of non-U.S. firms may be best offering, entering into, rendering advice, 3.10(c)(3) (referred to herein as the 3.10 deferred to foreign regulators.22 The or rendering other services with respect Exemption) provides that, inter alia, a to commodity interests from any person engaged in the activity of a CPO, 16 17 CFR 3.10(c)(3)(i). But see CFTC Staff Letters provision of the Act.8 Section 4(c) in connection with any commodity No. 16–08 and 15–37. Pursuant to these letters, Commission staff in the Division of Swap Dealer authorizes the Commission to grant interest transaction executed bilaterally and Intermediary Oversight (DSIO) recognized that exemptive relief if the Commission or made on or subject to the rules of any not all swaps are required to be cleared, and thus determines, inter alia, that the designated contract market or swap provided relief from registration for certain intermediaries acting on behalf of persons located exemption would be consistent with the execution facility, is not required to outside the United States or on behalf of certain 9 ‘‘public interest.’’ register as a CPO, provided that: International Financial Institutions in connection To provide an exemption pursuant to 1. The person is located outside the with swaps not subject to a Commission clearing section 4(c) of the Act with respect to United States, its territories, and requirement. In 2016, the Commission published a registration as a CPO, the Commission possessions (the United States or U.S.) proposed rule that would codify the position articulated in these DSIO staff letters. See (a non-U.S. CPO); Exemption from Registration for Certain Foreign 3 See 17 CFR 1.3 (defining ‘‘person’’ to include 2. The person acts only on behalf of Persons, 81 FR 51824 (Aug. 5, 2016). The individuals, associations, partnerships, persons located outside the United Commission is reopening the comment period on corporations, and trusts). States (an offshore commodity pool); such proposed rule pursuant to this Proposal. See 4 7 U.S.C. 1a(11). See also 17 CFR 1.3 (defining Section III, infra. ‘‘commodity interest’’ to include any contract for and 17 7 U.S.C. 6o. the purchase or sale of a commodity for future 18 17 CFR 3.10(c)(3)(ii). As market participants, delivery, and any swap as defined in the CEA); 10 7 U.S.C. 6(c)(2)(A). however, such persons remain subject to all other Adaptation of Regulations to Incorporate Swaps, 77 11 Id. at 6(c)(2)(B). applicable provisions of the CEA and the FR 66288, 66295 (Nov. 2, 2012) (discussing the 12 Id. at 6(c)(3)(E). Commission’s regulations promulgated thereunder. modification of the term ‘‘commodity interest’’ to 19 13 See Further Definition of ‘‘Swap Dealer’’, 77 FR 17 CFR 3.10(c)(3)(i). include swaps). 30596, 30655 (May 23, 2012) (finding, in the 20 Exemption from Registration for Certain 5 7 U.S.C. 1a(10). context of the eligible contract participant Foreign Persons, 72 FR 63976, 63977 (Nov. 14, 6 7 U.S.C. 6m(1). definition, that ‘‘construing the phrase ‘formed and 2007). See CFTC Staff Interpretative Letter 76–21. 7 7 U.S.C. 1a(11)(B). operated by a person subject to regulation under the 21 Exemption from Registration for Certain 8 7 U.S.C. 6(c)(1). [CEA]’ to refer to a person excluded from the CPO Foreign Persons, 72 FR at 63977, quoting 9 See Conference Report, H.R. Report 102–978 at definition, registered as a CPO or properly exempt Introducing Brokers and Associated Persons of 8 (Oct. 2, 1992) (‘‘The goal of providing the from CPO registration appropriately reflects Introducing Brokers, Commodity Trading Advisors Commission with broad exemptive powers . . . is Congressional intent’’). and Commodity Pool Operators; Registration and to give the Commission a means of providing 14 See, e.g., 17 CFR 3.10(a)(1)(i) (requiring the Other Regulatory Requirements, 48 FR 35248, certainty and stability to existing and emerging filing of a Form 7–R with the National Futures 35261 (Aug. 3, 1983). markets so that financial innovation and market Association (NFA)). 22 Id. The Commission also cited this policy development can proceed in an effective and 15 See 17 CFR 3.10(c) (exemption from position in the initial proposal for what ultimately competitive manner.’’). registration for certain persons). Continued

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Commission noted its understanding under the 3.10 Exemption.29 The developments since 2007 have resulted that, pursuant to the terms of the 3.10 Commission received several comments in a growing mismatch between the Exemption, ‘‘[a]ny person seeking to act regarding that aspect of the proposal. Commission’s stated policy purposes in accordance with any of the foregoing One commenter noted that the 3.10 underlying the 3.10 Exemption, which exemptions from registration should Exemption ‘‘is widely relied on around are to focus the Commission’s resources note that the prohibition on contact the world by non-U.S. managers of on the protection of U.S. persons, and with U.S. customers applies to offshore funds that are not offered to the 3.10 Exemption as adopted in 2007. solicitation as well as acceptance of U.S. investors but that may trade in the Therefore, the Commission has orders.’’ 23 Moreover, the Commission U.S. commodity interest markets.’’ 30 preliminarily determined that it is stated that ‘‘[if] a person located outside This commenter further noted that appropriate to amend the 3.10 the U.S. were to solicit prospective ‘‘CPO registration for these offshore Exemption to better align the terms of customers located in the U.S. as well as entities with global operations is not a the exemption with the Commission’s outside of the U.S., these exemptions viable option[,]’’ due to the logistical continued policy goals. The result is 31 would not be available, even if the only and regulatory issues involved. this proposal. Another commenter stated that, ‘‘it is customers resulting from the efforts II. The Proposal critical to bear in mind that the were located outside the U.S.’’ 24 Commission . . . to our knowledge has The Commission is proposing, In 2010, the Dodd-Frank Wall Street never addressed, the separate and pursuant to its authority under CEA Reform and Consumer Protection Act distinct question of whether an offshore section 4(c), several amendments to the (Dodd-Frank Act) 25 amended the CPO may rely on Rule 3.10(c)(3)(i) with current 3.10 Exemption (the Proposal). definition of ‘‘commodity pool respect to some of its offshore pools in Specifically, the Commission is operator’’ and ‘‘commodity pool’’ to combination with relying on other proposing amendments to the 3.10 include those persons operating exemptions with respect to its other Exemption such that non-U.S. CPOs collective investment vehicles that pools.’’ 32 Several other commenters may rely on that exemption on a pool- engage in swaps,26 which resulted in an expressed similar views and requested by-pool basis to better reflect the current expansion of the universe of persons that the Commission affirm the ability to state of operations of CPOs. The captured within the statutory claim the 3.10 Exemption on a pool-by- Commission is also proposing a definitions of both CPOs and pool basis and to rely upon that conditional safe harbor to enable non- commodity pools. When combined with exemption in addition to other U.S. CPOs who, by virtue of the the rescission of Commission regulation exemptions, exclusions, or structure of their offshore pool, cannot 4.13(a)(4) in 2012,27 an increasing registration.33 with certainty represent that there are number of non-U.S. CPOs were required In 2019, the Commission withdrew its no U.S. participants in their operated to either register with the Commission proposal to codify the relief provided in pool, to rely on the 3.10 Exemption. The or claim an available exemption or Advisory 18–96, and, in light of the Commission is further proposing that exclusion with respect to the operation comments received in response to the the revised 3.10 Exemption be available of their commodity pools, both offshore discussion of the 3.10 Exemption, to be claimed along with other pools and those offered to U.S. instead undertook an inquiry as to exemptions or exclusions available to participants. whether the 3.10 Exemption should be CPOs generally and to provide an amended to respond to the current CPO exception from the U.S. participant In 2018, the Commission proposed space and the issues articulated by prohibition in the 3.10 Exemption for adding a new exemption in Commission commenters.34 Based on the foregoing, initial capital contributions received regulation 4.13 to codify the relief and in light of the increasingly global from a U.S. controlling affiliate of an provided in CFTC Staff Advisory 18–96 nature of the commodity pool space, the offshore pool’s non-U.S. CPO. (Advisory 18–96).28 As part of that Commission preliminarily believes that a. Pool-by-Pool Exemption proposal, the Commission noted that the the statutory and regulatory proposed exemption based on Advisory The Commission understands that 18–96 could be claimed on a pool-by- 29 Registration and Compliance Requirements for non-U.S. CPOs may operate both pool basis, and stated that ‘‘[t]his Commodity Pool Operators and Commodity offshore commodity pools and characteristic would effectively Trading Advisors, 83 FR at 52914. commodity pools on behalf of persons 30 See Comment letter from the Asset located inside the United States (U.S. differentiate the [proposed exemption] Management Group of the Securities Industry and from the relief currently provided’’ Financial Markets Association (SIFMA AMG) at 9 commodity pools or U.S. pools). As (Dec. 17, 2018), available at https:// stated previously, however, the 3.10 comments.cftc.gov/PublicComments/ became Commission regulation 3.10(c)(3)(i). See Exemption prohibits persons from ViewComment.aspx?id=61922&SearchText=. Exemption from Registration for Certain Foreign 31 relying on that relief with respect to Persons, 72 FR 15637, 15638 (Apr. 2, 2007). Id. at 12. 32 See Comment letter from Fried, Frank, Harris, certain pools, but not others. Under a 23 Exemption from Registration for Certain categorical prohibition on contact with Foreign Persons, 72 FR at 63977–78. Shriver, & Jacobson, LLP (Fried Frank) at 6 (Dec. 17, 24 2018), available at https://comments.cftc.gov/ U.S. persons by non-U.S. CPOs seeking Id. at 63978. PublicComments/ViewComment.aspx? 25 to rely on the 3.10 Exemption, a non- Public Law 111–203, H.R. 4173 (2010). id=61920&SearchText=. 26 U.S. CPO that operates both offshore See Section 721 of the Dodd-Frank Act. 33 See, e.g., Comment letter from Willkie, Farr, 27 See Commodity Pool Operators and and Gallagher, LLP (Willkie) at 6 (Dec. 11, 2018), pools and pools offered to U.S. persons Commodity Trading Advisors; Compliance available at https://comments.cftc.gov/ would not be eligible for registration Obligations, 77 FR 11252, 11264 (Feb. 24, 2012). PublicComments/ViewComment.aspx? relief under Commission regulation Former Commission regulation 4.13(a)(4) provided id=61927&SearchText=; Comment letter from an exemption from registration as a CPO for Alternative Investment Management Association 3.10(c). As a result, a non-U.S. CPO that operators of commodity pools offered and sold to (AIMA) at 6 (Dec. 17, 2018), available at https:// operates a combination of offshore and sophisticated participants. See 17 CFR 4.13(a)(4) comments.cftc.gov/PublicComments/ onshore commodity pools would be (2010). ViewComment.aspx?id=61907&SearchText=. required to either list its offshore pools 28 Registration and Compliance Requirements for 34 Registration and Compliance Requirements for with the Commission and comply with Commodity Pool Operators and Commodity Commodity Pool Operators (CPOs) and Commodity Trading Advisors, 83 FR 52902 (Oct. 18, 2018); Trading Advisors: Family Offices and Exempt part 4 of the Commission’s regulations CFTC Staff Advisory 18–96 (Apr. 11, 1996). CPOs, 84 FR 67355, 67357 (Dec. 10, 2019). with respect to the operation of those

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pools as if those pools were no different as well as the rescission of, various this could result in greater diversity of from U.S. commodity pools, find regulatory exemptions, this has pool participation opportunities for U.S. another available exemption from necessarily resulted in an increase in persons and that this increased registration, or claim a regulatory the variety of persons captured within competition amongst commodity pools exclusion with respect to those offshore the definition of a CPO.38 Additionally, and CPOs could foster additional pools. the Commission notes the increasing innovation regarding commodity pool The Commission continues to believe globalization of the commodity pool operations, which is already one of the that it is advisable to focus its customer industry. For example, unlike when more dynamic sectors of the protection activities on U.S. persons and Commission regulation 3.10(c)(3)(i) was Commission’s responsibility. The on the persons and firms that solicit originally adopted, when measured by Commission further preliminarily derivatives transactions from those U.S. assets under management, today several believes that this potential for increased person customers.35 The Commission’s of the largest CPOs are located outside competition and variation in commodity regulatory regime was designed with a the United States, and these larger CPOs pools and CPOs would further promote view to ensuring U.S. persons solicited typically operate many different the vibrancy of the U.S. commodity for and participating in commodity commodity pools including some pools interest markets. pools receive the full benefit of the for U.S. investors and other pools for The Commission has preliminarily customer protections provided under non-U.S. investors. Upon consideration determined that the proposed revisions the Act. The current terms of the 3.10 of these developments, the Commission to the 3.10 Exemption set forth herein Exemption may result in the has preliminarily concluded that the will not have a material adverse effect Commission overseeing the operation of 3.10 Exemption should be amended to on the ability of the Commission or any commodity pools that are themselves reflect the Commission’s regulatory contract market to discharge their duties not domestic either in terms of their interests in such an integrated under the Act, because non-U.S. CPOs location or participants. The international investment management that would be exempt under the terms Commission’s mandate regarding environment. Therefore, the of this Proposal would remain subject to protection of customers in the U.S. Commission preliminarily believes that the statutory and regulatory obligations commodity interest markets with the Proposal, if adopted, would provide imposed on all participants in the U.S. 39 respect to the operation of commodity much-needed regulatory flexibility for commodity interest markets. The pools is primarily focused on protecting non-U.S. CPOs operating offshore Commission notes that this preliminary U.S. pool participants, not commodity commodity pools by taking into account conclusion is consistent with section pools located outside the United States the global nature of their operations 4(d) of the Act, which provides that any that have only non-U.S. pool without compromising the exemption granted pursuant to section participants. Reducing regulation of Commission’s mission of protecting U.S. 4(c) will not affect the authority of the commodity pools that are outside of the pool participants. Commission to conduct investigations Commission’s primary customer For the reasons stated above, the in order to determine compliance with protection mandate also allows the Commission preliminarily believes that the requirements or conditions of such Commission to more effectively apply amending the 3.10 Exemption such that exemption or to take enforcement action its resources for this purpose. Therefore, non-U.S. CPOs may claim the for any violation of any provision of the the Commission is proposing to amend exemption from registration with CEA or any rule, regulation or order Commission regulation 3.10(c)(3) such respect to the operation of their offshore thereunder caused by the failure to that non-U.S. CPOs may avail pools, while claiming an alternative comply with or satisfy such conditions themselves of the 3.10 Exemption on a 40 exemption or exclusion, or registering or requirements. Moreover, the pool-by-pool basis by specifying that the regarding the operations of their Commission would retain the authority availability of the 3.10 Exemption commodity pools that are offered or sold to take enforcement action against any would be determined by whether all of to U.S. persons, is an appropriate non-U.S. CPO claiming the 3.10 the participants in a particular offshore exercise of its exemptive authority Exemption based on their activities pool are located outside the United under section 4(c) of the Act. within the U.S. commodity interest States. The Commission preliminarily Additionally, the Commission markets consistent with its authority believes that amending the 3.10 preliminarily believes that clearly regarding market participants generally. Exemption such that non-U.S. CPOs enabling non-U.S. CPOs to avoid the b. Proposed Safe Harbor With Respect to may claim relief on a pool-by-pool basis additional organizational complexity Inadvertent Participation of U.S. appropriately focuses Commission associated with separately organizing Participants in Offshore Pools oversight on those pools that solicit their offshore and domestic facing and/or accept U.S. persons as pool As discussed above, one of the criteria businesses in an effort to comply with participants. for relief in current Commission the provisions of the 3.10 Exemption Moreover, since the adoption of the regulation 3.10(c)(3)(i) is that, in may result in more non-U.S. CPOs 3.10 Exemption in 2007, Congress connection with any commodity interest undertaking to design and offer expanded the Commission’s jurisdiction transaction executed bilaterally or made commodity pools for persons in the to include, among other things, on or subject to the rules of any United States. Moreover, the transactions in swaps 36 and rolling spot designated contract market or swap Commission preliminarily believes that retail foreign exchange transactions.37 execution facility, the claiming non-U.S. When combined with amendments to, CPO be acting only on behalf of persons 38 See, e.g., 17 CFR 4.13(a)(3) (swaps added to the located outside the United States, its enumerated commodity interests subject to the de 35 See Exemption from Registration for Certain minimis threshold following the Dodd-Frank Act, Foreign Persons, 72 FR at 63977. which effectively narrowed the availability of the 39 See, e.g., 7 U.S.C. 9 (prohibiting the use or 36 Wall Street Transparency and Accountability exemption); Commodity Pool Operators and employment of any manipulative or deceptive Act of 2010, Public Law 111–203, 124 Stat. 1376 Commodity Trading Advisors: Amendments to device in connection with any swap or contract of (2010). Compliance Obligations, 76 FR 7976 (Feb. 11, 2011) sale of any commodity in interstate commerce, or 37 Food, Conservation, and Energy Act of 2008, (rescinding Regulation 4.13(a)(4), which provided for future delivery on or subject to the rules of any Public Law 110–246, 122 Stat. 1651, 2189–2204 an exemption from registration for certain privately registered entity). (2008). offered commodity pools). 40 7 U.S.C. 6(d).

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territories, or possessions.41 The pool’s offering to participants located in registration exemptions available to Commission understands that non-U.S. the United States and on U.S. CPOs, whether domestic or offshore, the CPOs of offshore pools that are traded ownership of the offshore pool’s Commission would expect non-U.S. in offshore secondary markets may not participation units; 42 CPOs claiming the 3.10 Exemption to have the ability to make such a 2. The offshore pool’s constitutional maintain adequate documentation to representation with certainty as they documents and offering materials: (a) demonstrate compliance with the terms cannot be assured that only persons are reasonably designed to preclude of the safe harbor. located outside the U.S. would be persons located in the United States The Commission preliminarily accepted as participants because the from participating therein, and (b) believes that providing a safe harbor participation units are not purchased include mechanisms reasonably with appropriate conditions for non- directly from the offshore pool. designed to enable the CPO to exclude U.S. CPOs of commodity pools, Moreover, the Commission also any persons located in the United States regarding the absence of U.S. understands that, given the common use who attempt to participate in the participants in their offshore pools to of complex entity structures for tax offshore pool notwithstanding those avail themselves of the exemptive relief purposes, a non-U.S. CPO may not have prohibitions; in the 3.10 Exemption, may result in complete visibility into the ultimate 3. The non-U.S. CPO exclusively uses more offshore pools choosing to engage beneficial owners of its offshore pool’s non-U.S. intermediaries for the in the commodity interest markets in participation units, even in the absence distribution of participations in the the United States. Moreover, as noted of secondary market trading. offshore pool; above, pursuant to section 4(d) of the Despite this fairly common lack of 4. The non-U.S. CPO uses reasonable Act, the Commission expressly retains visibility into the ultimate ownership of investor due diligence methods at the the statutory authority to conduct some offshore pools, the Commission time of sale to preclude persons located investigations in order to determine preliminarily believes that a non-U.S. in the United States from participating compliance with the requirements or CPO should be able to rely on the 3.10 in the offshore pool; and conditions of such exemption or to take Exemption provided that the non-U.S. 5. The offshore pool’s participation enforcement action for any violation of CPO undertakes reasonable efforts to units are directed and distributed to any provision of the CEA or any rule, minimize the possibility of U.S. persons participants outside the United States, regulation or order thereunder caused being solicited for or sold participation including by means of listing and by the failure to comply with or satisfy units in the offshore pool. The trading such units on secondary markets such conditions or requirements.44 Commission preliminarily believes that organized and operated outside of the Moreover, again as noted above, the non-U.S. CPOs should not be foreclosed United States, and in which the non- Commission would retain the authority from relying upon the relief available U.S. CPO has reasonably determined to take enforcement action against any under the 3.10 Exemption solely due to participation by persons located in the non-U.S. CPO claiming the 3.10 the nature and structure of the operated United States is unlikely. Exemption based on their activities offshore pool preventing them from For this purpose, the Commission has within the U.S. commodity interest representing with absolute certainty that preliminarily determined that a non- markets. Therefore, the Commission no U.S. persons are participating in that U.S. intermediary would include a non- preliminarily believes that the safe pool, provided that such non-U.S. CPOs U.S. branch or office of a U.S. entity, or harbor proposed herein is an take reasonable actions available to a non-U.S. affiliate of a U.S. entity, appropriate exercise of its authority them to ensure that only non-U.S. provided that the distribution takes pursuant to section 4(c) of the Act. persons are solicited and admitted as place exclusively outside of the United c. Utilizing the 3.10 Exemption pool participants. States. Concurrent With Other Regulatory Relief Therefore, the Commission is By satisfying the factors of the safe Available to CPOs proposing to add a safe harbor as new harbor, for example, that the offshore Commission regulation 3.10(c)(3)(iv) for pool’s offering materials clearly prohibit As discussed above, the Commission non-U.S. CPOs that have taken, what the ownership by participants that are U.S. is proposing that the 3.10 Exemption for Commission preliminarily believes are, persons,43 and by using offshore non-U.S. CPOs be available on a pool- reasonable steps designed to ensure that distribution channels and exchanges, by-pool basis. Consistent with these participation units in the operated the Commission preliminarily believes proposed amendments, the Commission offshore pool are not being offered or that the non-U.S. CPO is exercising also preliminarily believes it is sold to persons located in the United sufficient diligence with respect to those appropriate to propose amendments to States. Pursuant to that proposed safe circumstances within its control to explicitly provide that non-U.S. CPOs harbor, a non-U.S. CPO would be demonstrate its intention to avoid may claim the 3.10 Exemption while permitted to engage in the U.S. engaging with U.S. persons concerning that CPO also claims other registration commodity interest markets on behalf of the offered offshore pool. Moreover, the exemptions or regulatory exclusions offshore pools for which it cannot Commission preliminarily believes that with respect to other pools it operates, represent with absolute certainty that all if a non-U.S. CPO meets the five factors e.g., the de minimis exemption under of the pool participants are offshore, in the safe harbor, the absence of U.S. Commission regulation 4.13(a)(3),45 or consistent with the requirements under participants is sufficiently ensured so as an exclusion from the definition of CPO the 3.10 Exemption, provided that such to allow reliance on the 3.10 Exemption. under Commission regulation 4.5,46 or non-U.S. CPO meets the following As with any of the Commission’s other to register with respect to such pools,47 conditions with respect to the operated offshore pool: 42 The Commission notes that, for purposes of the 44 7 U.S.C. 6(d). 1. The offshore pool’s offering safe harbor, and consistent with the proposed 45 17 CFR 4.13(a)(3). materials and any underwriting or exception for initial capital contributions from a 46 17 CFR 4.5. distribution agreements include clear, U.S. controlling affiliate, proposed Commission 47 The Commission notes that including regulation 3.10(c)(3)(iii) discussed infra, such U.S. registration among the provisions a non-U.S. CPO written prohibitions on the offshore controlling affiliate is not considered to be a may ‘‘stack’’ with the 3.10 Exemption is not strictly ‘‘participant.’’ necessary, as such status is implied given the 41 17 CFR 3.10(c)(3)(i). 43 See note 45, supra. amendments described earlier to allow the 3.10

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in order to address the concerns not affect that CPO’s ability to claim A controlling person must, by articulated by commenters to the 2018 other exclusions or exemptions, definition, have the corporate or other Proposal.48 The Commission including those in Commission legal authority to require the controlled understands that this practice is known regulations 4.5 or 4.13, or to register CPO to provide more information than colloquially as the ability to ‘‘stack’’ with respect to the other pools that it is required by the Commission, such as exemptions. operates. detailed information about the non-U.S. Currently, the 3.10 Exemption does d. Affiliate Investment Exception CPO’s finances, management and not have a provision that contemplates operations, and, more relevant to the its simultaneous use with other The Commission is also proposing to proposal herein, access to investment exemptions available under other add Commission regulation and performance information for the Commission regulations. This stands in 3.10(c)(3)(iii), which provides that offshore pool. Accordingly, the contrast with the language in initial capital contributed by a non-U.S. Commission preliminarily believes that CPO’s U.S. controlling affiliate to that Commission regulation 4.13(f), for due to the fundamentally different CPO’s offshore commodity pool would example, which states that, the filing of features of the relationship between a not be considered in assessing whether a notice of exemption from registration controlling affiliate and a non-U.S. CPO that pool is an offshore pool for under this section will not affect the as compared to an outside investor and purposes of the 3.10 Exemption because ability of a person to qualify for a CPO, a U.S. controlling affiliate’s exclusion from the definition of the the U.S. controlling affiliate would not participation, through an initial term ‘commodity pool operator’ under be considered a ‘‘participant’’ for investment, in its affiliated non-U.S. § 4.5 in connection with its operation of purposes of either proposed CPO’s offshore pool does not raise the another trading vehicle that is not Commission regulation 3.10(c)(3)(ii) or same customer protection concerns as covered under this § 4.13.49 3.10(c)(3)(iv). For the purpose of this With respect to those non-U.S. CPOs proposed amendment, the term similar investments in the same pool by that operate both U.S. pools and pools ‘‘control’’ would be defined as the unaffiliated persons located in the that meet the terms of the 3.10 possession, direct or indirect, of the United States. Exemption, the Commission power to direct or cause the direction of Commission staff in the Division of preliminarily believes that such non- the management and policies of a Swap Dealer and Intermediary U.S. CPOs should have the ability to person, whether through the ownership Oversight (DSIO) previously granted rely on other regulatory exemptions or of voting shares, by contract, or staff no-action relief for a non-U.S. CPO exclusions that they qualify for, just like otherwise.50 of offshore pools that received initial any other CPO. The Commission Although the 3.10 Exemption is capital contributions from U.S. sources preliminarily believes that the fact that intended to focus the Commission’s affiliated with the non-U.S. CPO for a the CPO of a U.S. commodity pool that resources on protecting U.S. limited period of time.52 Specifically, in otherwise meets the criteria for its participants, the Commission CFTC Staff Letter 15–46, DSIO operator to claim registration relief preliminarily believes that the control articulated a no-action position related under Commission regulation 4.13(a)(3), typically exercised by a controlling to initial capital contributions provided for example, has also claimed the 3.10 affiliate over its non-U.S. CPO affiliate to offshore pools operated by a non-U.S. Exemption for one or more of its should provide a meaningful degree of CPO derived from the U.S. employees of offshore pools does not raise heightened protection and transparency with the affiliated U.S. investment advisers to regulatory concerns regarding the respect to the controlling affiliate’s the offshore pools.53 In that instance, in operation of the U.S. pool. The contribution of initial capital to the non- part because the participants were Commission has independently U.S. CPO’s offshore commodity pool. natural person employees of the developed the terms under which CPOs Moreover, the majority of a CPO’s affiliated U.S. investment advisers, staff of U.S. commodity pools may claim compliance obligations generally focus determined that it was appropriate to registration relief, and the fact that a on customer protection through a limit the time in which the U.S. derived non-U.S. CPO operates both offshore variety of disclosures regarding a capital could remain in the offshore and U.S. commodity pools does not person’s participation in a pool, which pools without the non-U.S. CPO undermine the rationale providing the is information the controlling affiliate registering with the Commission.54 foundation for the Commission’s other would likely already be in a position to regulatory exemptions available to CPOs obtain independent of the Commission’s With respect to the exception generally. regulations, thereby obviating the need proposed herein, the Commission The Commission therefore for the Commission to mandate such preliminarily believes that imposing a preliminarily concludes that a non-U.S. disclosure and reporting.51 time limit is not necessary where the CPO relying upon the 3.10 Exemption initial investment capital is deriving not for one or more of its offshore pools 50 The Commission currently uses this definition from natural person employees, but should not be, by virtue of that reliance, of ‘‘control’’ in its part 49 regulations on swap data rather the corporate funds of a U.S. foreclosed from utilizing other relief reporting. See 17 CFR 49.2(a)(4). In January 2020, controlling affiliate. Unlike the facts generally available to CPOs of U.S. the Commission also proposed to implement this presented in CFTC Staff Letter 15–46, definition of ‘‘control’’ in the context of cross- pools. Thus, the Commission is also border regulation of swap dealers. See Cross-Border the Commission preliminarily believes proposing to add Commission Application of the Registration Thresholds and that the control that a U.S. controlling regulation 3.10(c)(3)(iv) to establish that Certain Requirements Applicable to Swap Dealers affiliate is able to exercise with respect a non-U.S. CPO’s reliance upon the 3.10 and Major Swap Participants, 85 FR 952, 1002 (Jan. to the operations of the non-U.S. CPO 8, 2020) (proposing to add the ‘‘control’’ definition Exemption for one or more pools will at § 23.23(a)(1)). and its offshore pools provides adequate 51 See 17 CFR 4.22(c)(8) (providing that a CPO assurances that the U.S. controlling Exemption to apply on a pool-by-pool basis. need not distribute an annual report to pools affiliate is able to obtain and act upon Nevertheless, the Commission is explicitly stating operated by persons controlling, controlled by, or that such a status is possible to provide certainty under common control with the CPO, provided that to affected non-U.S. CPOs. information regarding the underlying pool is 52 See CFTC Staff Letter 15–46 (May 8, 2015). 48 See, e.g., AIMA, at 6; Willkie, at 6. contained in the investor pool’s annual financial 53 Id. at 2. 49 17 CFR 4.13(f). statement). 54 Id.

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the information relevant to its the contribution of initial capital to an invested therein, should the exception participation in the offshore pool.55 offshore pool by a person subject to a be limited to entities or persons that are The Commission preliminarily statutory disqualification, ongoing otherwise financial institutions that are intends to limit the exception for U.S. registration suspension or bar, regulated in the United States to provide controlling affiliate capital contributions prohibition on acting as a principal, or investor protections? For example, to those made at or near a pool’s trading ban with respect to participating should the exception only be available inception, which generally result from in the U.S. commodity interest markets. to U.S. controlling affiliates regulated by commercial decisions by the U.S. Consistent with its authority under the Securities and Exchange controlling affiliate, typically in section 4(c) of the Act, the Commission Commission, a federal banking conjunction with the non-U.S. CPO, to preliminarily believes that providing an regulator, or an insurance regulator? support the offshore pool until such exception for initial capital 3. The Proposal notes that one of the time as it has an established contributions by U.S. controlling reasons underlying the U.S. controlling performance history for solicitation affiliates in offshore pools operated by affiliate exception is the affiliate’s likely purposes, although the contributed affiliated non-U.S. CPOs could result in ability to demand that the non-U.S. CPO capital may remain in the offshore pool increased economic or financial provide it with the information for the duration of its operations. The innovation by non-U.S. CPOs and their necessary to assess the operations and Commission preliminarily believes that offshore pools participating in the U.S. performance of the offshore pool. this limitation is appropriate to ensure commodity interest markets. The However, because these offshore pools that the capital is being contributed in Commission further preliminarily are by definition non-U.S. entities and an effort to support the operations of the believes enabling U.S. controlling it is not possible to ascertain with offshore pool at a time when its viability affiliates to provide initial capital to certainty whether such information is being tested, rather than as a offshore pools operated by affiliated must be provided to a U.S. controlling mechanism for the U.S. controlling non-U.S. CPOs could provide such non- affiliate under the laws applicable to the affiliate to generate returns for its own U.S. CPOs with the ability to test novel non-U.S. CPO and offshore pool, should investors. trading programs or otherwise engage in the exception be conditioned on there The Commission notes, however, that proof of concept testing with respect to being an obligation on the non-U.S. CPO the proposed exclusion may not be used innovations in the collective investment that is legally binding in its home to evade the Commission’s CPO industry that might otherwise not be jurisdiction to provide the U.S. compliance requirements with respect possible due to a lack of a performance controlling affiliate with information to offshore commodity pools. For history for the offered pool. For the regarding the operation of the offshore example, a controlling affiliate located reasons set forth above, the Commission pool by the affiliated non-U.S. CPO? in the U.S. could invest in its affiliated has preliminarily concluded that it is III. Reopening of Comment Period non-U.S. CPO’s offshore pool, and then appropriate to provide an exception for Under 2016 Proposal solicit persons located in the U.S. for initial capital contributions by U.S. investment in that controlling affiliate, controlling affiliates in offshore pools On July 27, 2016, the Commission for the purpose of providing such operated by affiliated non-U.S. CPOs proposed to amend Commission investors indirect exposure to that from the U.S. participant prohibition in regulation 3.10(c) to amend the offshore pool. Under these the 3.10 Exemption pursuant to section conditions under which the exemption circumstances, the Commission 4(c) of the Act. from registration would apply.56 preliminarily believes that such Generally, the proposed amendment practices would generally constitute e. General Request for Comment would permit a foreign broker or evasion of the Commission’s regulation The Commission requests comment persons located outside the United of CPOs and commodity pools soliciting on all aspects of the Proposal. States acting in the capacity of an and serving participants located in the Specifically, given the concerns introducing broker, commodity trading U.S. and would render the non-U.S. regarding potential evasion of CPO advisor, or commodity pool operator, CPO ineligible for the 3.10 Exemption. regulation using the controlling affiliate each as defined in Commission Additionally, the Commission provision, the Commission seeks regulation 1.3, to be eligible for an preliminarily believes that U.S. comment on several potential additional exemption from registration with the controlling affiliates that are barred from conditions on the exception that could Commission if the foreign broker or participating in the U.S. commodity be included in the final regulation. person, in connection with a commodity interest markets should not be permitted 1. To establish that the funds of the interest transaction, only acts on behalf to gain indirect access to those markets controlling affiliate are being used for of (1) persons located outside the United through an affiliated non-U.S. CPO’s seeding purposes, should the exception States, or (2) International Financial offshore pool as this would undermine state that the purpose of the investment Institutions (as defined in the proposed the purposes of such a ban. Therefore, by the controlling affiliate shall be for rule amendments), without regard to the Commission is proposing to include establishing the commodity pool and whether such persons or institutions provisions in the proposed exemption to providing sufficient initial equity to clear such commodity interest prohibit such evasive conduct marked permit the pool to attract unaffiliated transaction. by either pooling of U.S. participant non-U.S. investors? Similarly, should In response to the Proposal, the capital in the U.S. controlling affiliate or the exception be conditioned on the Commission received six comments,57 investment being limited in time to one, most of which were supportive of the 55 The Commission notes that certain control two, or three years after which time the proposal. Given the passage of time, affiliates may be subject to the time limitations investments of the controlling affiliate however, the Commission now requests imposed on the contribution of initial capital to affiliated covered funds under the Volcker Rule due must be reduced to a de minimis to their status as banking entities. See 17 CFR 75.12. amount of the pool’s capital, such as 3 56 Exemption from Registration for Certain The exemption proposed herein with respect to or 5 percent? What customer protection Foreign Persons, 81 FR 51824 (Aug. 5, 2016) (the initial capital contributions does not affect or negate ‘‘2016 Proposal’’). any other limitations imposed by other statutory or benefits would such limitations serve? 57 These comment letters are on the Commission’s regulatory provisions applicable to the control 2. Regarding the nature of controlling website at: http://comments.cftc.gov/ affiliate. affiliates, to protect the U.S. persons PublicComments/CommentList.aspx?id=1724.

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comment on whether it would be small CPOs operating pursuant to accuracy of the Commission’s estimate appropriate to finalize the 2016 Commission regulation 4.13(a)(2), the of the burden of a proposed collection Proposal along with the other Commission preliminarily believes that, of information; (3) determine whether amendments to Commission regulation should the amendments to the 3.10 there are ways to enhance the quality, 3.10 proposed in this release. Thus, the Exemption be adopted as final, certain utility, and clarity of the information to Commission is reopening the comment of those small CPOs may choose to be collected; and (4) mitigate the burden period on all aspects of the 2016 operate additional pools outside the of a collection of information on those Proposal for 60 days. United States, which could provide who are to respond, including through In addition, with respect to the 2016 additional opportunities to develop the use of automated collection Proposal, the Commission requests their operations not currently available techniques or other forms of information specific comment on whether to them. The Commission notes, technology. The Commission Commission regulation 3.10 should however, that such small CPOs would specifically invites public comment on require commodity interest transactions remain subject to the total limitations on the accuracy of its estimate that no of persons located outside of the United aggregate gross capital contributions and additional information collection States or of International Financial pool participants set forth in requirements or changes to existing Institutions that are required or Commission regulation 4.13(a)(2) collection requirements would result intended to be cleared on a registered because that exemption is based on the from the regulatory amendments derivatives clearing organization (DCO) entirety of the CPO’s pool operations. proposed herein. to be submitted for clearing through a Because investment vehicles operated Comments may be submitted directly futures commission merchant registered under the 3.10 Exemption remain to the Office of Information and in accordance with section 4d of the commodity pools under the CEA, the Regulatory Affairs (OIRA), by fax at Act, unless such person or International Commission preliminarily does not (202) 395–6566 or by email at Financial Institution is itself a clearing believe that the amendments proposed [email protected]. Please member of such registered DCO? herein would result in a significant provide the Commission with a copy of IV. Related Matters economic impact on a substantial submitted comments, so that all number of small CPOs. Further, the comments can be summarized and a. Regulatory Flexibility Act Commission notes that the Proposal addressed in the final rule preamble. The Regulatory Flexibility Act (RFA) would impose no new obligation, Refer to the ADDRESSES section of this requires Federal agencies, in significant or otherwise. Accordingly, notice of proposed rulemaking for promulgating regulations, to consider the Chairman, on behalf of the comment submission instructions to the whether the rules they propose will Commission, hereby certifies pursuant Commission. OMB is required to make have a significant economic impact on to 5 U.S.C. 605(b) that the Proposal, if a decision concerning a collection of a substantial number of small entities adopted, will not have a significant information between 30 and 60 days and, if so, to provide a regulatory economic impact on a substantial after publication of this document in the flexibility analysis regarding the number of small entities. Federal Register. Therefore, a comment economic impact on those entities. Each b. Paperwork Reduction Act is best assured of having its full effect Federal agency is required to conduct an The Paperwork Reduction Act of 1995 if OMB receives it within 30 days of initial and final regulatory flexibility publication. analysis for each rule of general (PRA) imposes certain requirements on applicability for which the agency Federal agencies, including the c. Cost-Benefit Considerations Commission, in connection with their issues a general notice of proposed Section 15(a) of the Act requires the rulemaking.58 conducting or sponsoring any collection of information, as defined by the PRA.61 Commission to consider the costs and The Proposal by the Commission benefits of its actions before issuing new today would affect only CPOs. The An agency may not conduct or sponsor, and a person is not required to respond regulations under the CEA.62 Section Commission has previously established 15(a) of the Act further specifies that the certain definitions of ‘‘small entities’’ to to, a collection of information unless it displays a currently valid control costs and benefits of the proposed rules be used by the Commission in shall be evaluated in light of five broad evaluating the impact of its rules on number. The Commission has preliminarily determined that the areas of market and public concern: (1) such entities in accordance with the Protection of market participants and requirements of the RFA.59 With respect proposed amendments, if adopted, will not impose any new recordkeeping or the public; (2) efficiency, to CPOs, the Commission previously has competitiveness and financial integrity determined that a CPO is a small entity information collection requirements, or other collections of information that of the futures markets; (3) price for purposes of the RFA, if it meets the discovery; (4) sound risk management criteria for an exemption from require approval of the Office of Management and Budget (OMB) under practices; and (5) other public interest registration under Commission considerations. The Commission may, regulation 4.13(a)(2).60 With respect to the PRA. The Commission invites the public in its discretion, give greater weight to any of the five enumerated areas of 58 5 U.S.C. 601, et seq. and other interested parties to comment 59 See, e.g., Policy Statement and Establishment of on this PRA determination. Pursuant to concern and may, in its discretion, Definitions of ‘‘Small Entities’’ for Purposes of the 44 U.S.C. 3506(c)(2)(B), the Commission determine that, notwithstanding its Regulatory Flexibility Act, 47 FR 18618, 18620 generally solicits comments in order to: costs, a particular rule is necessary or (Apr. 30, 1982). (1) Evaluate whether a proposed appropriate to protect the public interest 60 Id. at 18619–20. Commission regulation or to effectuate any of the provisions or 4.13(a)(2) exempts a person from registration as a collection of information is necessary CPO when: (1) None of the pools operated by that for the proper performance of the to accomplish any of the purposes of the person has more than 15 participants at any time, functions of the Commission, including CEA. The Commission invites public and (2) when excluding certain sources of funding, whether the information will have comment on its cost-benefit the total gross capital contributions the person considerations. receives for units of participation in all of the pools practical utility; (2) evaluate the it operates or intends to operate do not, in the aggregate, exceed $400,000. See 17 CFR 4.13(a)(2). 61 44 U.S.C. 3501, et seq. 62 7 U.S.C. 19(a).

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As explained above, the current 3.10 which these costs and benefits are under Commission regulation 4.27. The Exemption provides relief from compared is the regulatory status quo relief pursuant to Advisory 18–96 also registration to non-U.S. CPOs operating set forth in current Commission allows qualifying, registered U.S. CPOs offshore pools with foreign regulation 3.10(c)(3). to maintain their offshore pool’s original participants.63 The 3.10 Exemption The consideration of costs and books and records at the pool’s offshore provides that it is only available to non- benefits below is based on the location, rather than at the CPO’s main U.S. CPOs acting on behalf of offshore understanding that the markets function business office in the United States.67 commodity pools. In a prior proposal internationally, with many transactions Currently, based on the notices filed that discussed the 3.10 Exemption, the involving U.S. firms taking place across pursuant to Advisory 18–96, the Commission stated that the current international boundaries; with some Commission is aware of 23 non-U.S. registration exemption is not available Commission registrants being organized CPOs that operate 84 offshore pools and on a pool-by-pool basis, meaning that a outside of the United States; with some 20 U.S. CPOs that operate 88 offshore non-U.S. CPO would be unable to claim leading industry members typically pools. In total, 43 CPOs file 18–96 the exemption with respect to its conducting operations both within and notices. However, the Commission offshore pools meeting the specified outside the United States; and with preliminarily believes that there are criteria for the 3.10 Exemption while industry members commonly following likely a number of registered non-U.S. maintaining CPO registration with substantially similar business practices CPOs that do not list their offshore respect to other pools—e.g., pools, wherever located. Where the pools with the Commission, and, regardless of domicile, with U.S. Commission does not specifically refer therefore, do not claim relief under participants. Therefore, non-U.S. CPOs to matters of location, the discussion of Advisory 18–96. Although these that operate a mix of some offshore costs and benefits below refers to the exemption notices must be filed by pools that are not available to U.S. effects of this proposal on all activity hardcopy, the Commission believes the participants and other pools that are subject to the proposed amended administrative costs are low.68 CPOs offered and sold to U.S. participants regulations, whether by virtue of the must employ at least one staff-person to would have to either register and list all activity’s physical location in the manage and file the one-time notice of their operated pools or claim an United States or by virtue of the under Advisory 18–96. For a notice alternative exemption or exclusion. One activity’s connection with activities in under Advisory 18–96 to be effective, such available source of exemptive or effect on U.S. commerce under CEA the CPO must provide, among other relief is Staff Advisory 18–96 (Advisory section 2(i).65 things, business-identifying and contact 18–96), which, although still requiring information; representations that its registration of the CPO, does provide i. Proposed Commission Regulation principals are not statutorily relief from the majority of the 3.10(c)(3)(ii): Providing That the 3.10 disqualified; enumerated rules from compliance obligations set forth in part Exemption May Be Claimed on a Pool- which the CPO seeks relief; and contact 4 of the Commission’s regulations.64 by-Pool Basis information for person(s) who will The Commission is proposing several Specifically, pursuant to the Proposal, maintain offshore books and records.69 amendments to the current 3.10 a non-U.S. CPO would be able to claim Under the Proposal, the current 23 Exemption. Specifically, the the 3.10 Exemption from registration registered non-U.S. CPOs would be able Commission is proposing to amend the with respect to its eligible offshore to delist their offshore pools and no 3.10 Exemption such that non-U.S. pools, while either registering as a CPO longer file 18–96 notices acknowledging CPOs may rely on that exemption on a or claiming another available exemption that they operate one of the 84 offshore pool-by-pool basis through proposed or exclusion for its other pools that are pools. Upon delisting of such pools, Commission regulation 3.10(c)(3)(ii). either located in the U.S., or that solicit those registered non-U.S. CPOs would Next, proposed Commission regulation and/or accept as participants persons no longer have to include their offshore 3.10(c)(3)(iii) would make it clear that a located within the U.S. Absent the pools in their Form CPO–PQR filings, non-U.S. CPO’s eligibility to rely upon proposed amendment, such CPOs which will result in cost savings for the 3.10 Exemption is unaffected by any would face some costs and compliance those CPOs. The 20 U.S. CPOs, contributions the non-U.S. CPO’s burdens associated with the operation of however, would continue to claim relief offshore pools might receive from the their offshore pools,66 despite the under Advisory 18–96, because they non-U.S. CPO’s U.S. controlling Commission’s historical focus on remain ineligible for the 3.10 Exemption affiliate. The Commission is also prioritizing customer protection with due to their location in the United proposing Commission regulation respect to persons located in the United States. 3.10(c)(3)(iv), which would establish a States. For example, certain registered Currently, one way that a registered regulatory safe harbor for those non-U.S. U.S. and non-U.S. CPOs file self- CPO can avoid the requirement to list its CPOs that cannot represent with executing notices pursuant to Advisory offshore pools with the Commission is absolute certainty that there are no U.S. 18–96 with respect to their offshore to establish a separate, foreign- participants in the operated offshore pools. The Advisory provides domiciled CPO for all of the pools that pool. Finally, the Commission is compliance relief with respect to all of are eligible for the 3.10 Exemption. The proposing Commission regulation the pool-based disclosures required Commission preliminarily believes that 3.10(c)(3)(v), which would permit non- under the Commission’s regulations, as the Proposal would eliminate the U.S. CPOs to claim an available well as many of the reporting and incentive to establish a separately exemption from registration, claim an recordkeeping obligations that organized CPO solely to operate the exclusion, or register with respect to the otherwise would apply to registered pools that would qualify for the 3.10 other pools they operate. The proposed CPOs, with the exception of the Exemption. The Commission amendments would grant non-U.S. requirement to file Form CPO–PQR preliminarily believes, however, that the CPOs relief that will likely generate costs and benefits. The baseline against 65 7 U.S.C. 2(i). 67 See note 28, supra. 66 As discussed, infra, certain CPOs may be 68 See https://www.nfa.futures.org/members/cpo/ 63 See Section I, supra. eligible for significant compliance relief pursuant to cpo-exemptions.html. 64 CFTC Staff Advisory 18–96 (Apr. 11, 1996). Advisory 18–96. 69 See note 28, supra.

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financial expenses associated with participants located in the United Commission, the Commission establishing a foreign CPO varies States. Under the terms of the Proposal, preliminarily believes that it is depending on the operating size and such CPOs would continue to be reasonable to estimate the number of structure of the registered CPO. The required to engage in such monitoring. offshore pools operated in a similar Commission further notes that The Commission preliminarily manner to be equally small. incentives to establish additional CPOs believes that there may be some loss of The Commission preliminarily may also be affected by the amount of information available to the public believes that non-U.S. CPOs that would the financial outlay to establish foreign- regarding the existence of the offshore be eligible for registration relief under domiciled CPOs given that set-up pools operated by registered non-U.S. proposed Commission regulation costs—such as, costs to pay staff and CPOs because such offshore pools 3.10(c)(3)(iv) would avail themselves of experts; expenses for business licenses would no longer be listed with the that relief. This could result in the and registrations; costs to draft Commission, and consequently, the Commission receiving less information operational and disclosure documents; pools’ existence and identifying regarding the operation of such offshore fees to establish technological services— information would not be publicly pools operated pursuant to the proposed would be expected to vary by disclosed on NFA’s BASIC database. regulatory safe harbor. As noted above, jurisdiction. Therefore, although the The Commission has preliminarily the Commission preliminarily believes Commission believes that there are costs concluded that this loss of information that the amount of information lost as a associated with establishing a separate, would have a minimal impact on the result of the deregistration of such non- foreign-domiciled CPO, the Commission general public because persons located U.S. CPOs and associated delisting of preliminarily believes that such costs within the United States would their eligible offshore pools would be may be marginal and would be typically not be permitted by the non- minimal due to the expected small dependent on the organization and U.S. CPO to participate in such pools. number of CPOs and pools relative to the total population of registered CPOs domicile of the registered CPO. ii. Proposed Commission Regulation The Commission expects that and listed pools. 3.10(c)(3)(iv): Regulatory Safe Harbor for amending the 3.10 Exemption such that The Commission also preliminarily Non-U.S. CPOs With Possible non-U.S. CPOs may claim the expects that there may be some Inadvertent U.S. Participants in exemption on a pool-by-pool basis inadvertent U.S. participants in offshore Offshore Pools would result in such CPOs saving the pools who would lose the customer costs associated with forming and As explained previously, the protection afforded by part 4 of the maintaining a new CPO to operate the Commission is proposing Commission Commission’s regulations should a non- other pools in its overall structure, and regulation 3.10(c)(3)(iv) to provide a U.S. CPO decide to delist its offshore would thereby remove unnecessary regulatory safe harbor for those non-U.S. pools and claim relief under the 3.10 complexity in pool operations. CPOs who, due to the structure of their Exemption, given the clarity and Therefore, by amending the 3.10 offshore pools, cannot represent with certainty provided by the regulatory safe Exemption such that non-U.S. CPOs absolute certainty that there are no U.S. harbor. The Commission preliminarily may claim the exemption on a pool-by- participants in their offshore pools, believes that the enumerated actions pool basis, the Commission provided that such non-U.S. CPOs take comprising the regulatory safe harbor preliminarily believes that it would certain enumerated actions to ensure provide assurance that the number of eliminate a large portion of CFTC- that no U.S. persons are participating in U.S. persons so impacted would be registered, non-U.S. CPOs’ compliance the offshore pool. The Commission small. Moreover, the Commission costs associated with the operation of preliminarily believes that proposed preliminarily believes that such U.S. their offshore pools, which by their very Commission regulation 3.10(c)(3)(iv) persons, to the extent that they are characteristics implicate fewer of the benefits non-U.S. CPOs by making the aware that they are participating in what Commission’s regulatory interests. This registration relief provided under the is known to be an offshore pool through is only for U.S. compliance costs, as 3.10 Exemption more widely available the purchase of participation units sold non-U.S. CPOs would still have by recognizing the informational in an offshore secondary market, may compliance costs with non-US limitations inherent in certain pool not expect to benefit from the customer regulatory regimes. Moreover, the structures. Therefore, the Commission protection provisions in part 4 of the Commission preliminarily believes that preliminarily believes that this Commission’s regulations, but would this targeting of its CPO oversight proposed safe harbor could result in instead expect to rely upon the appropriately recognizes the global more non-U.S. CPOs relying upon the regulatory protections of the offshore nature of the asset management 3.10 Exemption with respect to more pool’s home jurisdiction. industry. pools. At this time, the Commission iii. Proposed Commission Regulation The Commission also does not expect lacks sufficient information to quantify that non-U.S. CPOs would experience the number of additional non-U.S. CPOs 3.10(c)(3)(v): Utilizing the 3.10 any increased costs associated with the and offshore pools that may claim relief Exemption Concurrent With Other amendments such that the 3.10 under proposed Commission regulation Available Exclusions and Exemptions Exemption may be claimed on a pool- 3.10(c)(3)(iv) because the Commission As explained above, the Commission by-pool basis. As noted above, the does not currently receive information is also proposing to add Commission Commission is proposing to permit the of the nature necessary to determine regulation 3.10(c)(3)(v) such that non- exemption to be claimed without any which offshore pools currently listed U.S. CPOs may rely upon the 3.10 filing by the non-U.S. CPO. This is no with the Commission are offered and Exemption concurrent with other different from how the current sold solely to offshore participants and exemptions and exclusions, or, exemption is implemented. The current what subset of those pools may have alternatively, registration under the terms of the 3.10 Exemption would participation units traded in the Commission’s regulations. The require a CPO to monitor the operations secondary market. Given, however, that Commission preliminarily believes that of its offshore pools to ensure that the exchange traded commodity pools proposed Commission regulation pools are not offered in the United currently comprise less than 1% of the 3.10(c)(3)(v) therefore benefits non-U.S. States and that they do not have any total number of pools listed with the CPOs through consistent treatment of

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CPOs of pools that are operated in a regulatory policy concerning CPOs and U.S. CPOs that have never listed their substantively identical manner with commodity pools.71 offshore pools with the Commission, respect to their use of derivatives or and hence did not seek relief under the iv. Proposed § 3.10(c)(3)(iii): Exclusion their size, regardless of where the CPO Advisory. Therefore, the total number of of Controlling Affiliate Investments in is based. The Commission has also non-U.S. CPOs utilizing this exemption Offshore Pools From the 3.10 Exemption could also be higher. In addition, as a preliminarily determined that these Eligibility Determination proposed amendments will benefit the result of the Commission being unware non-U.S. CPO industry generally by The Commission is also proposing to of the current number of offshore pools providing certainty regarding the ability permit non-U.S. CPOs to rely upon the operated by a non-U.S. CPO receiving to simultaneously rely upon the 3.10 3.10 Exemption for the operation of an seed capital from a U.S. controlling Exemption and other exclusions and offshore pool, even if a controlling affiliate, it is unable to predict how exemptions available under the affiliate within the United States many pools will utilize this proposed Commission’s regulations. The provides initial capital for the offshore exclusion in the future, if this Proposal Commission also notes that this pool. Absent the relief provided by is finalized. proposed amendment is consistent with proposed Commission regulation The Commission also preliminarily other instances in its CPO regulatory 3.10(c)(3)(iii), a non-U.S. CPO of an believes that this proposed amendment program, where the Commission already offshore pool receiving initial capital would result in reduced costs for non- permits CPOs to claim more than one from a controlling affiliate within the U.S. CPOs with initial capital type of exemption or exclusion or to U.S. would generally be required to contributions from U.S. controlling register with respect to the variety of register as a CPO and list that pool with affiliates by removing such investments commodity pools operated by them.70 the Commission, unless another from consideration for 3.10 Exemption The Commission further preliminarily exemption or exclusion was available. eligibility, thereby eliminating any believes that by clarifying the As a registered CPO with respect to that registration and compliance costs for offshore pool, the non-U.S. CPO would permissibility of using Commission such pools. The proposed amendment then be required to comply with the regulation 4.13 exemptions, for would, however, result in U.S. compliance obligations set forth in part example, in conjunction with the 3.10 controlling affiliates not being able to 4 of the Commission’s regulations. Exemption, non-U.S. CPOs may be more rely upon the protections provided by As discussed previously, the CPO registration and by part 4 of the likely to claim the relief under Commission has preliminarily Commission regulation 4.13 for their Commission’s regulations, with respect concluded that participation in an to their investments in an offshore pool eligible pools, rather than registering offshore pool by a U.S. controlling and listing those pools. The operated by their affiliated non-U.S. affiliate does not raise the same 72 Commission preliminarily concludes CPO. The Commission preliminarily regulatory concerns as would an believes that this loss would be that clearly establishing the availability investment in the same pool by an of other exemptions and exclusions or, mitigated by such a U.S. controlling unaffiliated participant located within affiliate’s ability to exercise control over alternatively, registration with respect to the United States. In addition to the the operations of the affiliated non-U.S. the operation of certain pools offered or reasons outline above, the Commission CPO, and thereby obtain whatever sold to persons within the United States preliminarily believes that this information regarding the offshore pool will further enable the Commission to proposed relief or condition to the a U.S. controlling affiliate may deem more efficiently deploy its resources in proposed 3.10 Exemption would material to its investment. Moreover, the the oversight of CPOs and commodity provide regulatory relief for a small Commission preliminarily believes this pools that it has previously determined number of currently-registered CPOs. approach is consistent with the more fully implicate its regulatory Based on the number of claims filed Commission’s focus on protecting U.S. concerns and interests under the CEA. under Advisory 18–96, there are 23 non- investors participating in commodity If more non-U.S. CPOs claim U.S. CPOs that operate 84 offshore pools and recognizes that U.S. exemptions under Commission commodity pools. The Commission is controlling affiliates may also be regulation 4.13(a)(3), for example, for unaware, however, of whether any of regulated by other federal and state some of their U.S. facing pools as a the offshore pools operated by those authorities. result of the Proposal, this could result non-U.S. CPOs actually received initial In the event, should this proposal be in pools that were previously listed and capital contributions from a U.S. finalized, that a non-U.S. CPO has listed associated with a CPO registration being controlling affiliate, in part, because the one or more offshore pools with the delisted. Under these circumstances, the Commission does not collect such Commission due to the fact that the Commission would, as a result, no information. Nevertheless, because of offshore pool received initial capital longer receive financial reporting with the small number of claims by non-U.S. contributions from a U.S. controlling respect to those pools, including on CPOs under Advisory 18–96, the affiliate, and such non-U.S. CPO Form CPO–PQR. Because these Commission preliminarily believes that determines to delist the offshore pool in commodity pools would in fact already the number of these CPOs that would be question and instead rely upon the be operated consistent with an existing subject to proposed Commission revised 3.10 Exemption, the exemption or exclusion, and because regulation 3.10(c)(3)(iii) would be less Commission would as a result no longer the Commission has previously than the 23. The Commission receive financial reporting with respect determined that pools operated in such preliminarily believes that there may be to such pool, including on Form CPO– a manner generally do not require a an unknown number of registered non- PQR. Because, however, the registered CPO, the Commission has Commission has preliminarily preliminarily determined that any 71 The Commission notes that it retains special determined that initial capital resulting loss of insight into such pools call authority with respect to those CPOs claiming and their CPOs would also be consistent an exemption from registration pursuant to 72 For example, a U.S. controlling affiliate would with the Commission’s overall Commission regulation 4.13, which enables the not be able to rely upon the Commission’s part 4 Commission to obtain additional information regulations to require its affiliated non-U.S. CPO to regarding the operation of commodity pools by such provide the controlling affiliate with disclosures 70 See, e.g., 17 CFR 4.13(e)(2) and 4.13(f). exempt CPOs. See 17 CFR 4.13(c)(iii). and reporting generally mandated by those rules.

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contributions by a U.S. controlling 5. Other Public Interest Considerations PART 3—REGISTRATION affiliate do not raise the same customer The Commission has not identified protection concerns as capital received ■ 1. The authority citation for part 3 is any other public interest considerations from other U.S. participants, the revised to read as follows: impacted by the Proposal beyond those Commission has preliminarily preliminarily identified as part of its Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, determined that any resulting loss of 2, 6, 6a, 6b, 6b-1, 6c, 6d, 6e, 6f, 6g, 6h, 6i, analysis supporting the Commission’s insight into such pools and their CPOs 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, exercise of its authority under section would also be consistent with the 13c, 16a, 18, 19, 21, and 23. 4(c) of the Act. Commission’s overall regulatory policy ■ 2. Amend § 3.10 by: concerning CPOs and commodity pools. d. Anti-Trust Considerations ■ a. Revising paragraph (c)(3)(i); ■ b. Redesignating paragraph (c)(3)(ii) as v. Section 15(a) Factors Section 15(b) of the Act requires the paragraph (c)(3)(v); 1. Protection of Market Participants and Commission to take into consideration ■ c. Adding new paragraphs (c)(3)(ii) the Public the public interest to be protected by the through (iv); antitrust laws and endeavor to take the ■ d. Revising newly redesignated The Commission preliminarily least anticompetitive means of paragraph (c)(3)(v), and believes that the Proposal would not achieving the purposes of the CEA, in ■ e. Adding paragraph (c)(3)(vi). have a material negative effect on the issuing any order or adopting any The revisions and additions read as protection of market participants and Commission rule or regulation follows: the public. The proposed amendments (including any exemption under CEA § 3.10 Registration of futures commission enhance the Commission ability to focus section 4(c) or 4c(b)), or in requiring or its efforts on protecting U.S. investors. merchants, retail foreign exchange dealers, approving any bylaw, rule, or regulation introducing brokers, commodity trading The Commission will continue to of a contract market or registered futures advisors, commodity pool operators, swap receive identifying information from association established pursuant to dealers, major swap participants, and U.S. CPOs operating offshore pools and section 17 of the Act.73 The Commission leverage transaction merchants. pools offered to U.S. investors. believes that the public interest to be * * * * * Regarding a non-U.S. CPO whose protected by the antitrust laws is (c) * * * offshore pools receive initial capital generally to protect competition. (3)(i) A person located outside the contributions from a controlling affiliate The Commission has considered the United States, its territories or in the United States, the Commission Proposal to determine whether it is possessions engaged in the activity of: preliminarily believes that although anticompetitive and has preliminarily An introducing broker, as defined in those offshore pools may no longer be identified no anticompetitive effects. § 1.3 of this chapter; or a commodity subject to part 4 of the Commission’s The Commission requests comment on trading advisor, as defined in § 1.3 of regulations, controlling affiliates, by whether the Proposal is anticompetitive this chapter, in connection with any virtue of their control over the non-U.S. and, if it is, what the anticompetitive commodity interest transaction CPO, need not be as reliant upon the effects are. executed bilaterally or made on or customer protection provided by Because the Commission has subject to the rules of any designated compliance with the Commission’s preliminarily determined that the contract market or swap execution regulations. The Commission also Proposal is not anticompetitive and has facility only on behalf of persons preliminarily expects that some U.S. no anticompetitive effects, the located outside the United States, its participants in offshore pools operated Commission has not identified any less territories or possessions, is not required pursuant to the regulatory safe harbor anticompetitive means of achieving the to register in such capacity provided may also lose the customer protections purposes of the Act. The Commission that any such commodity interest afforded by part 4 of the Commission’s transaction is submitted for clearing requests comment on whether there are regulations; however, the Commission through a futures commission merchant less anticompetitive means of achieving preliminarily expects the number of registered in accordance with section 4d the relevant purposes of the Act that such U.S persons to be small due to the of the Act. would otherwise be served by adopting criteria required for reliance upon the (ii) A person located outside the the Proposal. safe harbor. United States, its territories or vi. Request for Comment possessions engaged in the activity of a 2. Efficiency, Competitiveness and commodity pool operator, as defined in Financial Integrity of the Futures The Commission is seeking comment § 1.3 of this chapter, in connection with Markets on all aspects of the costs and benefits any commodity interest transactions The Commission has not identified associated with this Proposal. The that are executed bilaterally or made on any impact that the Proposal would Commission specifically seeks comment or subject to the rules of any designated have on the efficiency, competitiveness regarding the treatment of U.S. CPOs contract market or swap execution and financial integrity of the futures operating both U.S. and offshore pools facility, is not required to register in markets. by foreign regulatory bodies. such capacity when such transactions are executed on behalf of a commodity 3. Price Discovery List of Subjects in 17 CFR Part 3 pool the participants of which are all The Commission has not identified Consumer protection, Definitions, located outside the United States, its any particular impact that the Proposal Foreign futures, Foreign options, territories or possessions, and provided would have on price discovery. Registration requirements. that, any such commodity interest For the reasons stated in the transaction is submitted for clearing 4. Sound Risk Management Practices preamble, the Commodity Futures through a futures commission merchant The Commission has not identified Trading Commission proposes to amend registered in accordance with section 4d any impact that the Proposal would 17 CFR part 3 as follows: of the Act. have on sound risk management (iii) With respect to paragraphs practices. 73 7 U.S.C. 19(b). (c)(3)(ii) and (iv) of this section, initial

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capital contributed to a commodity pool listing and trading such units on The CFTC’s framework for regulating by an affiliate, as defined by secondary markets organized and foreign commodity pool operators (‘‘CPOs’’) § 4.7(a)(1)(i) of this chapter, that operated outside of the United States, protects U.S. investors who put their money controls, as defined by § 49.2(a)(4) of and in which the commodity pool in commodity investment funds run from this chapter, the pool’s commodity pool operator has reasonably determined outside the United States. But, in some operator shall not be a ‘‘participant’’ for instances, the only benefit of CFTC participation by persons located in the regulation of offshore CPOs is to foreign purposes of determining whether such United States is unlikely. investors. There is no statutory mandate for commodity pool operator is executing (v) Claiming an exemption under the CFTC to regulate funds never offered or commodity interest transactions on paragraph (c)(3)(ii) of this section will sold to U.S. investors. To do so absent a behalf of a commodity pool, the not affect the ability of a person to compelling reason would be—in President participants of which are all located register with the Commission or qualify Cleveland’s words—a waste of public money. outside of the United States, its for and/or claim an exclusion or Consequently, I am pleased to support territories or possessions, provided that: exemption otherwise available under today’s proposal to amend the exemption for (A) The control affiliate and its § 4.5 or 4.13 of this chapter, with respect CPOs in regulation 3.10(c) (‘‘3.10 principals are not subject to a statutory to the operation of a qualifying Exemption’’). If adopted, the proposal would eliminate the potential need for the CFTC to disqualification, ongoing registration commodity pool or trading vehicle not suspension or bar, prohibition on acting require the registration and oversight of non- covered by the relief in this section. U.S. CPOs whose pools have no U.S. as a principal, or trading ban with (vi) A person acting in accordance investors. The proposal would additionally respect to participating in commodity with paragraph (c)(3)(i) or (ii) of this exempt U.S.-based affiliates of fund sponsors interest markets in the United States, its section remains subject to section 4o of who put seed money into offshore funds that territories or possessions; and the Act, but otherwise is not required to have only foreign investors. In so doing, the (B) Interests in the control affiliate are comply with those provisions of the Act proposal would provide much-needed not marketed as providing access to and of the rules, regulations and orders regulatory flexibility for non-U.S. CPOs trading in commodity interest markets thereunder applicable solely to any operating offshore commodity pools, without in the United States, its territories or person registered in such capacity, or compromising the CFTC’s mission to protect U.S. investors. possessions. any person required to be so registered. (iv) With respect to paragraph Exemption for Foreign CPOs Sponsoring * * * * * (c)(3)(ii) of this section, a commodity Funds Without U.S. Investors pool operated by a person located Issued in Washington, DC, on June 1, 2020, The proposal would amend the conditions outside the United States, its territories by the Commission. under which a foreign CPO, in connection or possessions shall be considered to be Robert Sidman, with commodity interest transactions on satisfying the terms of paragraph Deputy Secretary of the Commission. behalf of persons located outside the United (c)(3)(ii) of this section if: States, would qualify for an exemption from Note: The following appendices will not CPO registration and regulation with respect (A) The commodity pool is organized appear in the Code of Federal Regulations. and operated outside of the United to that offshore pool. Specifically, through amendments to our regulation 3.10(c), a non- States, its territories or possessions; Appendices to Exemption From (B) The commodity pool’s offering U.S. CPO would be able to claim an Registration for Certain Foreign exemption from registration for its qualifying materials and any underwriting or Persons Acting as Commodity Pool offshore commodity pools, without being distribution agreements include clear, Operators of Offshore Commodity required to register as a CPO with respect to written prohibitions on the commodity Pools—Commission Voting Summary, the operation of other commodity pools.2 pool’s offering to participants located in Chairman’s Statement, and Absent a compelling reason, the CFTC the United States and on U.S. Commissioners’ Statements should be focused on U.S. markets and U.S. ownership of the commodity pool’s investors, and refrain from extending our participation units; Appendix 1—Commission Voting reach outside the United States.3 The (C) The commodity pool’s Summary protection of non-U.S. customers of non-U.S. firms is best left to foreign regulators with the constitutional documents and offering On this matter, Chairman Tarbert and materials are reasonably designed to Commissioners Quintenz, Behnam, Stump, preclude persons located in the United and Berkovitz voted in the affirmative. No 2 The proposal also would add a safe harbor as States from participating therein and Commissioner voted in the negative. new regulation 3.10(c)(3)(iv) for non-U.S. CPOs that have taken what the Commission preliminarily include mechanisms reasonably Appendix 2—Supporting Statement of believes are reasonable steps designed to ensure designed to enable its operator to Chairman Heath P. Tarbert that participation units in the operated offshore exclude any persons located in the pool are not being offered or sold to persons located United States who attempt to participate In his second inaugural address in 1893, in the United States. President Grover Cleveland remarked that 3 For example, section 2(i) of the Commodity in the offshore pool notwithstanding Exchange Act provides that the swap provisions of those prohibitions; ‘‘[u]nder our scheme of government the waste of public money is a crime against the Title VII of the Dodd-Frank Act shall not apply to (D) The commodity pool operator 1 activities outside the United States unless those exclusively uses non-U.S. citizen.’’ The CFTC is a taxpayer-funded activities (1) have a direct and significant agency, and Congress expects us to deploy intermediaries for the distribution of connection with activities in, or effect on, our resources to serve the needs of American commerce of the United States; or (2) contravene participations in the commodity pool; taxpayers. That is why as Chairman and such rules or regulations as the Commission may (E) The commodity pool operator uses Chief Executive, I have sought to revisit our prescribe or promulgate as are necessary or reasonable investor due diligence agency’s regulations where there does not appropriate to prevent the evasion of Title VII. In methods at the time of sale to preclude appear to be a clear connection to furthering interpreting this provision, the Commission has the interests of the United States or our taken the position that ‘‘[r]ather than exercising its persons located in the United States authority with respect to swap activities outside the from participating in the commodity citizens. United States, the Commission will be guided by pool; and international comity principles and will focus its (F) The commodity pool’s 1 Second Inaugural Address of Grover Cleveland authority on potential significant risks to the U.S. (Mar. 4, 1893), reprinted in American History financial system.’’ Cross-Border Application of the participation units are directed and Through Its Greatest Speeches: A Documentary Registration Thresholds and Certain Requirements distributed to participants outside the History of the United States 278 (Courtney Smith, Applicable to Swap Dealers and Major Swap United States, including by means of et al., eds. 2016). Participants, 85 FR 952, 955 (Jan. 8, 2020).

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relevant jurisdiction and mandate.4 effectively its own offshore fund, without affiliates of foreign pools would have the Therefore, I believe it is appropriate for the triggering registration requirements. ability to contribute initial capital to those proposed rule to allow foreign CPOs to rely It is hard to imagine how an entity that pools.5 on the 3.10 Exemption for their foreign ultimately controls a given foreign CPO could I applaud the staff of the Commission for commodity pools when they have no U.S. lack a sufficient degree of transparency with continuing their work despite the COVID–19 investors. Where a foreign CPO does have respect to its own contribution of initial pandemic and I look forward to reviewing U.S. investors, other exemptions or capital to an offshore commodity pool run by the industry’s comments. exclusions from registration might be that same foreign CPO. In short, a U.S. available. controlling affiliate’s initial investment in its Appendix 4—Statement of Unfortunately, under a strict construction affiliated non-U.S. CPO’s offshore pool does Commissioner Rostin Behnam of the current rule, if a foreign CPO has one not raise the same investor protection I will support today’s notice of proposed fund with U.S. investors, then the foreign concerns as similar investments in the same rulemaking and reopening of a comment CPO must register all its funds or rely on pool by unaffiliated persons located in the period primarily aimed at amending the some other exemption besides the 3.10 United States. In many cases, moreover, the conditions of the current exemption under Exemption. This ‘‘all or nothing’’ reading of parent company is itself regulated by other Commission regulation 3.10(c)(3) (referred to the rule has produced two competing U.S. regulators—for instance, state insurance as the ‘‘3.10 Exemption’’) available to certain consequences—neither of which makes for departments in the case of insurance non-U.S. commodity pool operators (CPOs) good regulatory policy. First, if the CPO companies that wish to deploy their own to further reflect the increasingly global chooses to register all its funds, the CFTC general account assets as they best see fit, in nature of the CPO space and clarify the ends up regulating some foreign-based funds keeping with their separate regulatory Commission’s approach with respect to its without any U.S. investors. Second, if the regimes. Accordingly, I see no reason to oversight of foreign intermediaries that are CPO refuses to register any of its funds, then deploy the limited, taxpayer-funded not engaged in commodity interest activities U.S. investors are effectively denied the resources of the CFTC to protect U.S. parents on behalf of U.S. customers. I greatly liquidity and investment opportunities of foreign CPOs who are far better positioned appreciate the time and consideration that offered by foreign commodity pools. than our federal agency to safeguard their the staff of the Division of Swap Dealer and In the last decade, statutory and regulatory own interests. Intermediary Oversight (DSIO) gave to my developments have produced a growing Appendix 3—Supporting Statement of comments and concerns. I also wish to thank mismatch between the Commission’s stated the Office of General Counsel (OGC) staff for policy purposes underlying the 3.10 Commissioner Brian Quintenz ensuring that we consistently adhere to the Exemption (that focus the CFTC’s resources I am pleased to support today’s proposal to letter and spirit of the Commodity Exchange on the protection of U.S. persons) and the amend the Commission’s regulation Act (CEA or the ‘‘Act’’) and regulations. I am strict construction of the 3.10 Exemption providing an exemption from registration for pleased that the ongoing dialog that has (that leads to its ‘‘all or nothing’’ a foreign commodity pool operator trading on become a hallmark of many working application). To address this mismatch, U.S. markets on behalf of foreign investors.1 relationships within the Commission is today’s proposal would amend the 3.10 Building on previously granted staff no- enduring better than ever through the Exemption to align the plain text of the action relief, the proposal would create new pandemic, and that we can advance exemption with our longstanding policy goal possibilities for fund managers and provide important policy and regulatory initiatives of regulating only foreign CPOs that offer for simplified compliance. At the same time, without sacrificing constructive debate and their funds to U.S. investors. In effect, the the proposal ensures that the Commodity deliberation. Commission’s walk would finally conform to Exchange Act continues to protect U.S. Today’s proposal both expands the our talk.5 market participants. Like the Commission’s availability of the 3.10 Exemption to non- U.S. CPOs who operate both qualifying Affiliate Investment Exemption proposal from January addressing its jurisdiction over foreign swap dealing offshore commodity pools and other In addition to ensuring the CFTC’s activities,2 this rulemaking sensibly marks commodity pools that may or may not meet resources are focused on commodity pools the boundaries of the Commission’s reach an alternative regulatory registration with U.S. investors, we must also strive to into foreign derivatives trading activities in exemption or exclusion and eases certain protect those who are truly arms-length, light of market realities. And like the identifiable and unduly restrictive third-party investors. To that end, the proposal from earlier this year amending the impediments to relying on the 3.10 proposal would permit certain U.S. control Commission’s regulations governing Exemption. Like several recent rulemakings affiliates of a non-U.S. CPO to contribute commodity broker bankruptcies,3 in this undertaken with respect to Part 4 of the capital to that CPO’s offshore pools as part rulemaking the Commission staff applies Commission Regulations, today’s proposal is of the initial capitalization without rendering their experience to make the Commission’s a continuation of the Commission’s ongoing the non-U.S. CPO ineligible for the 3.10 regulations more efficient. efforts in honing its regulatory footprint with Exemption. In other words, the proposal I would like to highlight certain aspects of respect to this dynamic segment of the would simply allow a U.S. parent company the proposal. It would permit a foreign fund derivatives market by refining our approach of a foreign CPO to invest in what is manager to satisfy the exemption’s through calibrating decades of policy and rulemakings to the needs of the market requirement that its pool does not contain 4 participants, consumers, and the national The Commission also cited this policy position funds of U.S. investors by complying with public interest we are charged with in the initial proposal for what ultimately became certain safe harbors, such as fund Commission regulation 3.10(c)(3)(i). See 72 FR protecting. documentation disclosures.4 The proposal 15637, 15638 (Apr. 2, 2007). Though today’s proposal is brief in its recognizes that the manner in which fund 5 Apart from policy incoherence inside the CFTC, delivery, it reflects many years of staff interests are sold in the real world often the mismatch has also caused confusion among experience and familiarity with the makes it impossible for a fund manager to CPOs and their investors. A number of foreign CPOs Commission’s historical positions and make a blanket attestation that there is no have not adopted the strict ‘‘all or nothing’’ reading reasoning in addressing material policy of the 3.10 Exemption, but have instead quite U.S. investment in a given commodity pool. issues raised by appropriately balancing the sensibly latched on to the Commission’s stated I am also particularly pleased to see that U.S. policy behind the rule to conclude that a foreign financial interests of foreign intermediaries CPO may rely on the current 3.10 Exemption for and their customers with our commitment to 1 non-U.S. pools with only non-U.S. investors even CFTC regulation 3.10(c)(3) (17 CFR 3.10(c)(3)). the financial integrity of U.S. markets and if the foreign CPO operates other non-U.S. pools 2 Cross-Border Application of the Registration U.S. customer protection. I believe today’s with U.S. investors. Given that the confusion Thresholds and Certain Requirements Applicable to proposal equally reflects the Commission’s largely stems from the Commission’s own doing, I Swap Dealers and Major Swap Participants (Notice of Proposed Rulemaking), 85 FR 952 (Jan. 8, 2020). commitment to making targeted changes in would not support any enforcement action against step with improvements in surveillance and foreign CPOs whose interpretation followed the 3 Bankruptcy Regulations (Notice of Proposed spirit, if not the letter, of the 3.10 Exemption. Rulemaking) issued by the Commission on Apr. 14, monitoring capabilities as well with our Furthermore, today’s proposal, if adopted, would 2020, publication in the Federal Register pending. vindicate their reading. 4 Proposed regulation 3.10(c)(3)(iv). 5 Proposed regulation 3.10(c)(3)(iii).

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relationships with both the National Futures authority outlined in section 4(d) of the Act regulating activities that have an impact on Association (NFA) and foreign regulators. to investigate a CPO’s compliance with the U.S. customers and commerce.3 To the extent Last fall, when the Commission finalized requirements and conditions of the 3.10(c) the commodity pools that would be exempt several amendments to part 4 of the Exemption, as proposed, and to bring an from registration under the Proposal trade regulations addressing various registration enforcement action for any violation of any derivatives on U.S. exchanges, those and compliance requirements for CPOs and provision of the CEA or Commission activities are subject to oversight by the commodity trading advisors, I commended regulations caused by the failure to comply exchanges and through the Commission’s its decision to not move forward at that time with or satisfy any of the Exemption’s exchange regulations. on proposals to exempt from registration conditions or requirements.4 This is in Since the adoption of the regulation qualifying CPOs operating commodity pools addition to the Commission’s retained 3.10(c)(3) registration exemption, two outside of the U.S. consistent with authority to take enforcement action against developments have increased the need for Commission Staff Advisory 18–96 1 and any non-U.S. CPO claiming the 3.10 greater clarity in the rule. First, changes to adding a prohibition against statutory Exemption based on their activities within CFTC regulations since the 2008 financial disqualifications for certain exempt CPOs.2 the U.S. derivatives markets consistent with crisis, particularly adding swap regulation The decision not to act reflected a thoughtful our authority regarding market participants and placing needed limits on other CPO consideration of the comments received and generally. registration exemptions, have led to a the practicalities of both proposals as they Again, I would like to thank the staffs of significant increase in the number of pool related to ongoing concerns about cross- DSIO, OGC and the rest of the operators that are technically subject to border issues and the Commission’s Commissioners who worked to put forth this registration. Second, the business of regulatory goals. proposal. commodity investment management has Today’s proposal results from ongoing become more global in nature, increasing the review and discussions with market Appendix 5—Statement of complexity of cross border activities by the participants and the NFA to determine how Commissioner Dan M. Berkovitz firms that operate commodity pools. The Proposal would exempt non-U.S. best to provide relief that better aligns the I support the proposal to amend regulation CPOs from registration and regulation with Commission’s customer protection concerns 3.10(c)(3) addressing the exemption from respect to individual commodity pools that with the Commission’s regulatory provisions registration for foreign persons who operate do not solicit from U.S. persons or have U.S. in an increasingly international asset commodity pools for customers located 3 investors.4 The Proposal also provides that management space. Other aspects of today’s outside of the United States (‘‘Proposal’’). this exemption for some pools may be used proposal include the addition of a safe harbor The Commission should focus its limited with other exemptions or exclusions for person’s engaged in CPO activities with resources on commodity pools in which U.S. permitted under our regulations. These respect to offshore commodity pools that take persons participate, rather than commodity changes largely reflect the pre-existing policy certain enumerated actions aimed at pools located outside the U.S. in which only that non-U.S. CPOs need not register their preventing U.S. persons from participating in non-U.S. persons participate. The Proposal offshore pools. such pools, and a provision permitting addresses several specific scenarios in which The Proposal would provide a safe harbor certain U.S. control affiliates of a non-U.S. the registration exemption would apply, and to the non-U.S. CPOs in the event that U.S. CPO to contribute capital to such CPO’s which previously created potential persons become inadvertently invested in the offshore pools as seed money without uncertainty for market participants. offshore pools. The Proposal appears to impacting the non-U.S. CPO’s eligibility for I am concerned, however, that the provide adequate conditions on the safe the 3.10(c) Exemption. Taking a pause as provision in the Proposal that would enable harbor to prevent abuse thereof. I look opposed to rushing forward has afforded controlling affiliates—U.S. entities with U.S. forward to comments on whether the Commission staff additional time to tailor investors that provide capital to non-U.S. proposed conditions should be expanded, regulatory language so as to avoid confusion pools—to rely on the exemption could be reduced, or otherwise modified. and inadvertent loss of longstanding used by CPOs who take funds directly from Finally, the Proposal would permit a non- Commission policy aimed at protecting U.S. U.S. persons to evade the CPO registration U.S. CPO to rely on the exemption even if a customers. and regulatory requirements. I look forward U.S. entity that controls the non-U.S. CPO While I have some questions and will be to reviewing comments on whether that contributes capital in the initial funding of interested in hearing from commenters on the provision is appropriate and whether the exempt offshore pools. This provision specific issues raised with regard to seed additional conditions or limitations should could be beneficial for U.S. fund managers money and certain other aspects of the apply to prevent such abuse. proposal that seem to permeate multiple seeking to compete in foreign markets and policy-driven discussions of late, I believe Non-U.S. Pools With no U.S. Customers may be acceptable with appropriate limits. today’s proposal is reasonable, will reduce It is longstanding CFTC policy that an I am concerned, however, that the regulatory burdens without sacrificing key entity that meets the CPO definition and controlling affiliate provision would enable regulatory protections, and is drafted in trades commodity interests in our markets is persons in the U.S. to indirectly invest— observance of the high standards for not required to register as a CPO if the entity either knowingly or unknowingly—in exercising exemptive authority under section is located offshore and only operates pools unregulated foreign commodity pools. Under 4(c) of the Act. To that end, I am reassured for persons located outside of the United this provision, partnerships and corporations that the exercise of such authority States.1 In 2007, the Commission expressly could take in investment funds from U.S. unequivocally preserves the Commission’s codified the exemption in regulation persons and invest those funds in commodity 3.10(c)(3). Customer protection is a primary pools operated by non-U.S. pool operators 1 Advisory No. 18–96, Offshore Commodity Pools goal of the Commission’s registration and that they ‘‘control.’’ Neither the controlling Relief for Certain Registered CPOs from rules 4.21, regulatory requirements for CPOs.2 The 4.22 and 4.23(a)(10) and (a)(11) and From the rationale for the exemption for foreign pools 3 See e.g., Commodity Exchange Act (‘‘CEA’’) Location of Books and Records Requirement of Rule has been that the CFTC’s customer protection section 2(i). In contrast to this focus on customers, 4.23 (Apr. 11, 1996), https://www.cftc.gov/sites/ regulations generally should focus on a primary policy goal of swap dealer regulation is default/files/tm/advisory18-96.htm. preventing systemic risk. This goal necessitates 2 Rostin Behnam, Statement of Concurrence by oversight of swap trading activity outside of the CFTC Commissioner Rostin Behnam: Amendments 4 7 U.S.C. 6(d). United States that can have a significant impact on to Registration and Compliance Requirements for 1 See CFTC Staff Interpretative Letter 76–21 (Aug. U.S. commerce if risks from that activity come back Commodity Pool Operators and Commodity 15, 1976). into the U.S. financial system through regulated Trading Advisors, Nov. 25, 2019, https:// 2 The regulation of CPOs also facilitates the swap dealers. See generally Interpretive Guidance www.cftc.gov/PressRoom/SpeechesTestimony/ Commission’s oversight of the derivative markets, and Policy Statement Regarding Compliance with behnamstatement112519. management of systemic risks, and mandate to Certain Swap Regulations, 78 FR 45292 (July 26, 3 Of note, today’s proposal does not retract Staff- ensure safe trading practices. See, e.g., Commodity 2013). Advisory 18–96, remains available to U.S. CPOs Pool Operators and Commodity Trading Advisors: 4 The CPO would need to register and comply and others who would not be in the position to rely Compliance Obligations, 77 FR 11252, 11253, 11275 with CFTC regulations with regard to any other on the revised 3.10(c) Exemption as proposed (Feb. 24, 2012); upheld in Investment Company commodity pools it operates that do solicit funds today. Institute v. CFTC, 720 F.3d 370 (D.C. Cir. 2013). from U.S. persons.

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affiliates nor the pool operators would be DEPARTMENT OF THE TREASURY Franklin Station, Washington, DC regulated by the CFTC. The U.S. investors in 20044. the U.S. control affiliate would receive none Internal Revenue Service FOR FURTHER INFORMATION CONTACT: of the CPO disclosures or other protections Concerning the proposed regulations, afforded by our laws and regulations. In fact, 26 CFR Part 1 Edward C. Schwartz, (202) 317–4740; they may never know that the entity they are [REG–117589–18] concerning submissions of comments investing in is placing their funds in offshore and outlines of topics, or requests for a commodity pools. There is no requirement to RIN 1545–BP02 public hearing, Regina L. Johnson, (202) disclose this information to U.S. persons 317–5177 (not toll-free numbers). investing in the controlling affiliate. Statutory Limitations on Like-Kind Furthermore, the Proposal permits an Exchanges SUPPLEMENTARY INFORMATION: unregistered non-U.S. CPO to accept ‘‘initial AGENCY: Internal Revenue Service (IRS), Background capital contributions’’ from a control affiliate Treasury. that is a U.S. person, but does not provide I. Overview ACTION: any limitations on the duration or extent of Notice of proposed rulemaking. This document contains proposed such contributions. Arguably, under the SUMMARY: These proposed regulations amendments to the Income Tax proposed provision, the controlling affiliate provide guidance under the Internal Regulations (26 CFR part 1, as revised could fund the entire pool investment with Revenue Code (Code) to implement April 1, 2019) under section 1031 of the funds from U.S. persons and leave that recent changes enacted in the Tax Cuts Code (current regulations). The amount in the pool with no time limitation, and Jobs Act. The proposed regulations proposed amendments to the current thus allowing a complete end-run around our amend the existing regulations to add a regulations (proposed regulations) CPO regulations. definition of real property to reflect implement statutory amendments to The Proposal expressly acknowledges that statutory changes limiting section 1031 section 1031 made by section 13303 of evasion of our CPO rules is possible and says to exchanges of real property. The Public Law 115–97 (131 Stat. 2054), that such evasion would be unlawful. I want proposed regulations also provide a rule commonly referred to as the Tax Cuts to thank the CFTC staff who drafted the addressing a taxpayer’s receipt of and Jobs Act (TCJA). Section 13303(c) of Proposal for working with my office to add personal property that is incidental to the TCJA amended section 1031 to limit some conditions to the provision. However, its application to exchanges of real I am still concerned there may be insufficient real property the taxpayer receives in the exchange. The proposed regulations property for exchanges completed after safeguards to prevent abuse. For these December 31, 2017, subject to a reasons, I requested that several questions be affect taxpayers that exchange business or investment property for other transition rule for certain exchanges in added to the Proposal to address which which property had been transferred additional conditions could appropriately be business or investment property and that must determine whether the before January 1, 2018. To implement added to achieve the purpose of the these statutory changes, the proposed provision and still provide sufficient exchanged properties are real property for purposes of section 1031. regulations would limit the application protections to the U.S. investors in the of the like-kind exchange rules under DATES: Written or electronic comments controlling affiliate. I look forward to the section 1031 to exchanges of real and requests for a public hearing must comments on this issue. property and adapt an existing be received by August 11, 2020. incidental property exception to apply Exercising Commodity Exchange Act Section Requests for a public hearing must be 4(c) Authority to a taxpayer’s receipt of personal submitted as prescribed in the property that is incidental to real Finally, the Proposal relies on authority ‘‘Comments and Requests for a Public property the taxpayer receives in the provided to the Commission in CEA section Hearing’’ section. exchange. 4(c) to adopt exemptions from regulatory ADDRESSES: Commenters are strongly requirements if certain public policy goals encouraged to submit public comments II. Section 1031 After the TCJA are better served and if certain conditions are electronically. Submit electronic satisfied. Generally, I am not in favor of using As amended by the TCJA, section submissions via the Federal 1031(a) provides that no gain or loss is this authority unless no other direct legal eRulemaking Portal at https:// authority exists and doing so clearly falls recognized on the exchange of real www.regulations.gov (indicate IRS and within the intent of Congress in giving the property held for productive use in a REG–117589–18) by following the Commission that power. During the trade or business or for investment online instructions for submitting development of the draft Proposal, I raised a (relinquished real property) if the comments. Once submitted to the number of concerns regarding the use of relinquished real property is exchanged section 4(c) and I want to commend the Federal eRulemaking Portal, comments solely for real property of a like kind CFTC staff for their efforts to address my cannot be edited or withdrawn. The IRS that is to be held either for productive concerns by more fully explaining in the expects to have limited personnel use in a trade or business or for Proposal why the use of section 4(c) available to process public comments investment (replacement real property). authority is appropriate in this instance. that are submitted on paper through However, left unchanged by the TCJA, mail. Until further notice, any [FR Doc. 2020–12034 Filed 6–11–20; 8:45 am] section 1031(b) provides that a taxpayer comments submitted on paper will be must recognize gain on the receipt of BILLING CODE 6351–01–P considered to the extent practicable. money and non-like-kind property in an The Department of the Treasury exchange. (Treasury Department) and the IRS will publish for public availability any III. Current Regulations Regarding ‘‘Like comment submitted electronically, and Kind’’ to the extent practicable on paper, to its Although the TCJA removed personal public docket. Send hard copy and certain intangible property from submissions to: CC:PA:LPD:PR (REG– eligibility for like-kind exchange 117589–18), Room 5203, Internal treatment, the need to determine Revenue Service, P.O. Box 7604, Ben whether the relinquished real property

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