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counterparty,’’ as such term is used in investment company updates its Specifically, the Commission amended § 50.50(b), and for purposes of prospectus as described in Section II.F., § 4.5 to modify the exclusion from the § 50.50(b)(1)(iii)(A), the reporting below, and files the prospectus with the definition of ‘‘ counterparty, as determined pursuant to SEC. Moreover, the publication of these operator’’ for those entities that are § 45.8, shall report that an exemption is rules trigger the conditional compliance investment companies registered as being elected in accordance with this date that was established in the such with the Securities and Exchange section. Commodity Pool Operators and Commission (‘‘SEC’’) pursuant to the Issued in Washington, DC, on August 13, Commodity Trading Advisors: Investment Company Act of 1940 (‘‘ ’40 2013, by the Commission. Compliance Obligations rulemaking. 77 Act’’).7 This modification amended the Melissa D. Jurgens, FR 11252, 11252 (Feb. 24, 2012). With terms of the exclusion available to CPOs Secretary of the Commission. the publication of these rules, registered of RICs to include only those CPOs of CPOs of RICs must comply with § 4.27 RICs that commit no more than a de Note: The following appendix will not on or before October 21, 2013. minimis portion of their assets to the appear in the Code of Federal Regulations. FOR FURTHER INFORMATION CONTACT: trading of commodity interests that do Amanda Lesher Olear, Associate not fall within the definition of bona Appendix to Clearing Exemption for fide hedging and who do not market Certain Swaps Entered Into by Director, Telephone: (202) 418–5283, Email: [email protected], or Michael themselves as a commodity pool or Cooperatives—Commission Voting other commodity investment.8 Pursuant Summary Ehrstein, Attorney-Advisor, Telephone: 202–418–5957, Email: mehrstein@ to this amendment, any such CPO of a Appendix 1—Commission Voting Summary cftc.gov, Division of Dealer and RIC that exceeds this level, or markets On this matter, Chairman Gensler and Intermediary Oversight, Commodity itself as such, will no longer be Commissioners Chilton, O’Malia, and Wetjen Futures Trading Commission, Three excluded from the definition of CPO. voted in the affirmative. Lafayette Centre, 1155 21st Street NW., Accordingly, except for those CPOs of [FR Doc. 2013–19945 Filed 8–21–13; 8:45 am] Washington, DC 20581. RICs who commit no more than a de minimis portion of their assets to the BILLING CODE 6351–01–P SUPPLEMENTARY INFORMATION: trading of commodity interests that do I. Background not fall within the definition of bona COMMODITY FUTURES TRADING This rulemaking is related to the final fide hedging and who do not market COMMISSION rule adopted under RIN 3038–AD30. themselves as a commodity pool or other commodity investment, an 17 CFR Part 4 A. Recent Amendments to § 4.5 as operator of a RIC that meets the Applicable to RICs RIN 3038–AD75 definition of ‘‘commodity pool The operator’’ under § 4.10(d) of the Harmonization of Compliance (‘‘CEA’’) 1 provides the Commission Commission’s regulations and § 1a(11) Obligations for Registered Investment with the authority to require registration of the CEA must register as such with Companies Required To Register as of CPOs and CTAs,2 to exclude any the Commission.9 Commodity Pool Operators entity from registration as a CPO or B. Harmonization Proposal CTA,3 and to require ‘‘[e]very AGENCY: Commodity Futures Trading commodity trading advisor and In response to the Commission’s Commission. registered February 2011 proposal to amend the ACTION: Final rule. under [the CEA] to maintain books and § 4.5 exclusion with respect to CPOs of RICs,10 as well a staff roundtable held records and file such reports in such SUMMARY: The Commodity Futures on July 16, 2011 (‘‘Roundtable’’),11 and form and manner as may be prescribed Trading Commission (‘‘Commission’’ or meetings with interested parties, the by the Commission.’’ 4 The Commission ‘‘CFTC’’) is adopting final regulations Commission received numerous with respect to certain compliance also has the authority to ‘‘make and promulgate such rules and regulations obligations for commodity pool § 4.5 maintained this exclusion for those RICs that operators (‘‘CPOs’’) of investment as, in the judgment of the Commission, engage in a de minimis amount of non-bona fide companies registered under the are reasonably necessary to effectuate hedging commodity interest transactions. See id. Investment Company Act of 1940 the provisions or to accomplish any of Specifically, the amendment to § 4.5 retained this the purposes of [the CEA].’’ 5 exclusion for RICs whose non-bona fide hedging (‘‘registered investment companies’’ or commodity interest transactions require aggregate ‘‘RICs’’) that are required to register due In February 2012, the Commission initial margin and premiums that do not exceed five to the recent amendments to its adopted modifications to the exclusions percent of the liquidation value of the qualifying pool’s portfolio, or whose non-bona fide hedging regulations. The Commission is also from the definition of CPO that are delineated in § 4.5 (‘‘2012 Final Rule’’).6 commodity interest transactions’ aggregate net adopting amendments to certain notional value does not exceed 100 percent of the provisions of part 4 of the Commission’s liquidation value of the pool’s portfolio. 1 regulations that are applicable to all 7 U.S.C. 1, et seq. 7 15 U.S.C. 80a–1, et seq. ‘‘SEC’’ as used herein 2 7 U.S.C. 6m. means the Securities and Exchange Commission or CPOs and Commodity Trading Advisors 3 7 U.S.C. 1a(11) and 1a(12). its staff, as the context requires. (‘‘CTAs’’). 4 7 U.S.C. 6n(3)(A). Under part 4 of the 8 17 CFR 1.3(yy). DATES: Effective dates: This rule is Commission’s regulations, unless otherwise 9 Pursuant to the terms of § 4.14(a)(4), CPOs are effective August 22, 2013, except the provided by the Commission, entities registered as not required to register as CTAs if the CPOs’ CPOs have reporting obligations with respect to commodity trading advice is directed solely to, and amendments to §§ 4.7(b)(4), 4.12(c)(3)(i), their operated pools. See 17 CFR 4.22. for the sole use of, the pool or pools for which they 4.23, 4.26, and 4.36 which are effective 5 7 U.S.C. 12a(5). are registered as CPOs. 17 CFR 4.14(a)(4). September 23, 2013. 6 17 CFR 4.5. See 77 FR 11252 (Feb. 24, 2012); 10 76 FR 7976 (Feb. 11, 2011). Compliance dates: Registered CPOs correction 77 FR 17328 (March 26, 2012). Prior to 11 See Notice of CFTC Staff Roundtable seeking exemption under these rules this Amendment, all RICs, and the principals and Discussion on Proposed Changes to Registration employees thereof, were excluded from the and Compliance Regime for Commodity Pool shall be required to comply with the definition of ‘‘commodity pool operator,’’ by virtue Operators and Commodity Trading Advisors, conditions adopted in § 4.12(c)(3)(i) of the RICs registration under the Investment available at http://www.cftc.gov/PressRoom/Events/ when the associated registered Company Act of 1940. The 2012 amendment to opaevent_cftcstaff070611.

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comments expressing concern about the language; and the SEC-permitted use of Final Rule imposed upon CPOs of RICs relationship between part 4 of the a summary prospectus for open-ended that do not otherwise qualify for an Commission’s regulations applicable to registered investment companies. exemption only the requirement to CPOs of RICs and the SEC rules and Commenters advocated different register.21 The Commission also guidance under the ’40 Act, the approaches to harmonization. Some finalized, but suspended compliance Securities Act of 1933 (‘‘Securities suggested that where requirements are with, pending the completion of further Act’’),12 and the Securities Exchange inconsistent, the Commission should rulemaking, a requirement that CPOs of Act of 1934 13 regarding disclosure, defer to SEC requirements.16 A few RICs file certain information on form reporting and recordkeeping by RICs commenters made recommendations CPO–PQR, pursuant to § 4.27. At the (collectively, ‘‘SEC RIC Rules’’).14 about the treatment of specific same time, consistent with the Commenters asserted variously that the disclosures, such as presenting both Commission’s authority under § 4.12(a), two sets of requirements touched upon SEC and CFTC-required fee information the Commission commenced a new similar areas, imposed undue burdens and presenting certain performance rulemaking to evaluate the necessity on CPOs of RICs, or conflicted such that information required by the CFTC in the and reasonableness of additional CPOs of RICs could not comply with Statement of Additional Information requirements and, where possible, to both. On this basis, some commenters (‘‘SAI’’).17 One commenter noted that devise ways in which the Commission’s argued that CPOs of RICs should not be CPOs of RICs should be required to requirements for CPOs of RICs could be required to comply with the full set of comply with all disclosure and other harmonized with applicable requirements under part 4. Several requirements applicable to registered requirements of the SEC.22 previously received comments, which CPOs.18 The Commission therefore published were noted in the Proposal, suggested Sections 4n(3) and (4) of the CEA 19 for comment in the Federal Register that the Commission make relief authorize the Commission to adopt proposed amendments to part 4 of the available, with respect to document and regulations requiring that CPOs Commission’s regulations designed to report distribution, similar to that which maintain books and records and file address potentially conflicting or it has recently adopted with respect to reports with the Commission in the duplicative compliance obligations exchange-traded funds (‘‘ETFs’’).15 manner and form it prescribes. Such administered by the Commission and Some commenters suggested ways in compliance obligations for CPOs are set the SEC regarding disclosure, reporting which the two agencies’ requirements forth in part 4 of the Commission’s and recordkeeping by CPOs of RICs (the could be harmonized to eliminate the regulations and include a set of ‘‘Proposal’’).23 The Commission inconsistencies between the two requirements that address disclosure, proposed changes to part 4 designed to compliance regimes with respect to recordkeeping, and reporting better harmonize the Commission’s those entities subject to dual registration obligations. The regulations are compliance obligations for CPOs with as a result of the recent amendments to designed to promote market integrity those of the SEC for entities that are § 4.5. Specific areas of focus identified and transparency, facilitate necessary subject to both regimes in such a way by the commenters include: The timing Commission oversight, and provide that would allow the Commission to of delivery of Disclosure Documents to important information to prospective fulfill its regulatory mandate while, at prospective participants; the signed participants. The requirement to comply the same time, avoiding unnecessary acknowledgement requirement for with the full panoply of obligations set regulatory burdens on dually-regulated receipt of Disclosure Documents; the forth in part 4 of the Commission’s CPOs of RICs with respect to disclosure, cycle for updating Disclosure regulations does not, however, follow annual and periodic reporting to Documents; the timing of financial inexorably from registration under the participants, and Commission reporting to participants; the 2012 Final Rule requiring CPOs of RICs recordkeeping requirements.24 requirement that a CPO maintain its to register. The Commission The Proposal to harmonize the books and records on site; the required determined, after consideration of the Commission’s regulatory regime with disclosure of fees; the required comments received, that further that of the SEC as it applies to CPOs of disclosure of past performance; the consideration was warranted concerning RICs is grounded in the concept of inclusion of mandatory certification whether and to what extent CPOs of substituted compliance. That is, insofar RICs ought to be subject to various part as the disclosure, reporting, and 12 15 U.S.C. 77a, et seq. 4 requirements, and in the 2012 Final recordkeeping regime administered by 13 15 U.S.C. 78a, et seq. Rule suspended the obligations of CPOs 14 The Commission understands that that SEC of RICs with respect to most of the 21 The Commission’s regulations also provide for provides guidance in a variety of ways to market requirements of part 4 until further exemptions from registration for CPOs of privately participants, including interpretive guidance, no rulemaking.20 The Commission’s 2012 offered pools that engage in a de minimis amount action letters, frequently asked questions, and staff of commodities trading (17 CFR 4.13(a)(3)), CPOs feedback in response to document submissions. The whose total capital contributions for all operated Commission also notes that RICs may be subject to 16 See, e.g., Comment letter from the Investment pools do not exceed $400,000 and whose total separate requirements imposed by the Financial Company Institute (April 12, 2011) (ICI Letter). participants do not exceed 15 (17 CFR 4.13(a)(2)), Industry Regulatory Authority. 17 See, e.g., Comment letter from the National and CPOs that do not advertise and who do not 15 See 76 FR 28641 (May 18, 2011). The Futures Association (April 12, 2011) (NFA Letter). receive any incentive or management fees (17 CFR Commission adopted rules to relieve individual 18 See Comment letter from Steben & Company, 4.13(a)(1)). CPOs of publicly offered, ETFs of certain Inc. (April 25, 2012) (Steben letter). 22 See 2012 Final Rule, supra note 6, 77 FR at requirements in part 4 of the Commission’s 19 7 U.S.C. 6n(3) and (4). 11260 (‘‘Entities required to register due to the regulations. Specifically, the Commission adopted 20 See 2012 Final Rule, supra note 6, 77 FR at amendments to § 4.5 shall be subject to the amendments to § 4.12 providing exemptive relief 11252, 11255. The Commission exercised its Commission’s recordkeeping, reporting, and from §§ 4.21, 4.22, and 4.23 for operators of ETFs. authority under §§ 4 and 8a of the CEA, 7 U.S.C. disclosure requirements set forth in part 4 of the Such relief includes providing disclosure and 6 and 12a, and § 4.12(a) of its regulations Commission’s regulations within 60 days following periodic accounts statements to participants thereunder, which provides that the Commission the effectiveness of a final rule implementing the through the Internet and permitting the use of third- may exempt any person or class of persons from Commission’s proposed harmonization effort party service providers for recordkeeping any or all of part 4 requirements if the Commission pursuant to the concurrent proposed rulemaking.’’). obligations. Previously, Commission staff had finds that the exemption is not contrary to the 23 77 FR 11345 (Feb. 24, 2012). issued relief to ETFs only on a case-by-case basis. public interest or the purposes of the provision 24 The Commission issued its proposal under the ETFs that are also RICs may rely on the relief from which the exemption is sought. 17 CFR authority of §§ 4m, 4n, and 8a(5) of the CEA. 7 provided herein. 4.12(a). U.S.C. 6m, 6n, and 12a(5).

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the SEC under SEC RIC Rules were obligations under SEC RIC Rules, requirements.27 In addition, some designed to achieve substantially whereby the Commission will accept commenters advocated modifications to similar goals to those of the compliance by such entities with the part 4 requirements that they believed Commission’s part 4 regulations, then disclosure, reporting, and recordkeeping were necessary to maintain suitable CPOs of RICs that maintain compliance regime administered by the SEC as regulatory requirements for all CPOs.28 under the SEC regime would be deemed substituted compliance with part 4 of Commenters also addressed potential to fulfill their obligations under part 4 the Commission’s regulations. The costs and benefits of harmonizing CFTC of the Commission’s regulations. At the Commission has concluded that this is and SEC rules applicable to RICs.29 same time, in the event that a CPO of appropriate because, as the Commission Beginning in 2011, Commission staff a RIC fails to comply with the SEC continues to gain experience regulating has engaged in ongoing substantive administered regime, the CPO will be in CPOs of RICs, it believes that general discussions with SEC staff regarding violation of its obligations under part 4 reliance upon the SEC’s compliance possible areas of harmonization between of the Commission’s regulations and regime, with minor additional the compliance regimes of the two thus subject to enforcement action by disclosure, should provide market commissions as applicable to RICs and the Commission. As such, the Proposal participants and the general public with their CPOs, including disclosure to contemplated an alternative means for a meaningful disclosure, including for prospective investors and financial CPO of a RIC to comply with its example, with regard to risks and fees, reporting. Such consultations occurred obligations under part 4 of the provide the Commission with throughout the process culminating in Commission’s regulations by modifying information necessary to its oversight of this final rule and have informed the certain of the requirements. These CPOs, and ensure that CPOs of RICs Commission’s understanding of RICs proposed modifications included: The maintain appropriate records regarding and the SEC’s regulation thereof. timing of the delivery of Disclosure their operations. As noted, in the event D. Significant Changes From the Documents to prospective participants; that the operator of the RIC fails to Proposal the signed acknowledgement comply with the SEC administered In the Proposal, the Commission requirement for receipt of Disclosure regime, the operator of the RIC will be stated its intent to facilitate compliance Documents; the cycle for updating in violation of its obligations under part by CPOs of RICs with the Commission’s Disclosure Documents; the timing of 4 of the Commission’s regulations and disclosure, reporting, and recordkeeping financial reporting to participants; the subject to enforcement action by the requirements. As a result, the requirement that a CPO maintain its Commission. books and records on site; the required Commission proposed various disclosure of fees; the required C. Comments on the Proposal alternative mechanisms to enable dually disclosure of past performance; the registered operators of RICs to comply The Commission received 66 inclusion of mandatory certification with the Commission’s part 4 comment letters regarding the Proposal 30 language; and the SEC-permitted use of requirements. After consideration of from a wide range of entities, including a summary prospectus for open-ended the comments received and further trade and public interest organizations, registered investment companies. deliberation, the Commission is As stated in the 2012 Final Rule, the family offices, a registered futures adopting rules that effectively justification for the amendments to § 4.5 association, individuals, currently 25 was to enable the Commission to registered CPOs, RICs, and law firms. 27 See, e.g., Comment letter from New York City adequately discharge its duties to Generally, commenters favored the Bar Association (May 30, 2012) (NYCBA Letter); Commission’s effort to harmonize for Comment letter from Securities Industry and oversee the commodity interest markets. Financial Markets Association Asset Management Therefore, the Commission determined CPOs of RICs the Commission’s part 4 Group (April 24, 2012) (SIFMA AMG Letter); to require the CPOs of RICs that regulations with SEC-administered Comment letter from Fidelity Management and 26 exceeded a de minimis threshold of rules. Commenters particularly Research Company (April 24, 2012) (Fidelity focused on disclosure issues, including Letter). commodity interest trading, excluding 28 NFA Letter; Campbell Letter; Comment letter bona fide hedging, or which marketed the ‘‘break-even’’ disclosure, required from the Managed Funds Association (April 24, themselves as a commodity pool or statements of risk, cycle for updating 2012) (MFA Letter). other commodity investment, to register Disclosure Documents, financial 29 ICI Letter. with the Commission. The Commission reporting including periodic account 30 In five of the eleven areas of potential statements, and books and records redundancy, inconsistency, or conflict addressed in recognizes, however, that its the Proposal, the Commission proposed allowing understanding of RICs and their use of substituted compliance by adherence to SEC commodity interests continues to evolve 25 See http://comments.cftc.gov/PublicComments/ regulations. Under the proposal, CPOs of RICs as it gains experience regarding RICs, CommentList.aspx?id=1161. The Commission notes would be exempt from disclosure requirements that it received six duplicate comment letters; thus, under §§ 4.21, 4.22, and 4.23. See Proposal, supra and their regulation and operation. the Commission received 60 unique comments. Of note 23, 77 FR at 11346. CPOs of RICs would also Thus, at this time, the Commission the comments received, many focused on the be exempt from more frequent disclosures required believes that the prudent approach is to advisability of an exemption for single-family pools by § 4.26, and the oath or affirmation required by provide a substituted compliance (‘‘Family Offices’’). The Commission’s Division of § 4.22(h). Id. For four other areas of potential regime based largely upon adherence to Swap Dealer and Intermediary Oversight issued a conflict, the Commission proposed allowing the letter on November 29, 2012, providing that it requested information to be disclosed instead in the regime administered by the SEC as would not recommend enforcement action against SEC filings. Specifically, the proposal provides it continues to expand its knowledge of the operator of a ‘‘’’ as that term has alternative methods of satisfying §§ 4.24(a), RICs and their use of commodity been defined in the SEC’s regulations. See, CFTC 4.25(d)(5), 4.25(d), and 4.24(i), which ordinarily interests. Staff Letter, 12-37, available at http://www.cftc.gov/ require a cautionary statement, break-even points, ucm/groups/public/@lrlettergeneral/documents/ and disclosure of fees and expenses, and requires Therefore, in this final rule, the letter/12–37.pdf. The Commission further notes that that they be located in the forepart of the document. Commission has determined to broaden it has considered additional comments, including With respect to the last two areas—the frequency of the approach set forth in the Proposal. those received at and following the Roundtable, see the provision to customers of account statements The Commission is adopting a supra note 11, regarding the harmonization of CFTC and the content of disclosures regarding past and SEC regulation applicable to operators of RICs. performance of commodity pools less than three substituted compliance regime for CPOs 26 See, e.g., NFA Letter; Comment letter from years old—the Commission proposed maintaining of RICs largely premised upon such Campbell & Company, Inc. (April 24, 2012) its own standards, but also solicited comments on entities’ adherence to the compliance (Campbell Letter). how it could harmonize those last two areas.

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implement a substituted compliance recordkeeping purposes, it will be commenter suggested the Commission approach for dually registered CPOs of required to file notice with NFA. withdraw its Proposal and re-propose RICs, whereby such CPOs, largely In light of the requirements applicable harmonized compliance obligations for through compliance with obligations to RICs under SEC RIC Rules, the RICs.34 Other commenters requested imposed by the SEC, will be deemed Commission has endeavored to broad exemptions from all part 4 compliant with the Commission’s harmonize its regulations to achieve a regulations.35 One commenter, for regulatory regime. This is consistent reasonable balance that serves the example, suggested that the Commission with the Commission’s conclusion that Commission’s regulatory goals under more narrowly tailor the part 4 substituted compliance is appropriate part 4 of its regulations.31 In addition, requirements to those funds that use because it believes that the regime the Commission has determined to derivatives as a primary investment administered by the SEC under SEC RIC modify certain part 4 requirements strategy and exempt from registration Rules, with minor additional disclosure, applicable to all CPOs, including CPOs funds that only use derivatives for should provide market participants with of RICs. In particular, this final rule will diversification and/or hedging meaningful disclosure as required under permit a CPO of a RIC to use a third- purposes.36 Another commenter part 4, enable the Commission to party service provider for recordkeeping contended that the rules must take into discharge its regulatory oversight purposes. A CPO electing to do so will account the differences between open- function with respect to the derivatives be required to file a notice with the ended funds (which continuously offer markets, and ensure that CPOs of RICs NFA. Additionally, all CPOs and CTAs shares and redeem through the maintain appropriate records regarding will be permitted to use a Disclosure company) and closed-ended funds their operations. Document for up to 12 months. (which generally have an initial offering and then trade shares on an exchange).37 The Commission is also modifying II. Discussion certain part 4 requirements that are Some commenters suggested that the applicable to all CPOs to recognize A. Scope and Timing Commission work with the SEC in order to more effectively harmonize the certain technological improvements and The Commission received many requirements of the two regimes, and in operational efficiencies that have comments that pertained to the scope particular, ensure that compliance with developed since part 4 was last revised. and timing of the Proposal. For the one regulatory regime would not The key changes from the Proposal that example, some commenters expressed the Commission is making in the rules cause a violation of the other.38 displeasure with the Commission’s The Commission is aware that some it is adopting today are as follows: (1) recent amendments to § 4.5 and § 4.27.32 Operators of RICs will be deemed to be commenters do not believe that CPOs of One commenter said the Proposal is RICs should be required to register with in compliance with §§ 4.21, 4.22(a) and unripe and should be withdrawn (b), 4.24, 4.25, and 4.26 if they satisfy the Commission. The CPO registration pending the judicial challenge of the requirement in § 4.5, however, is all applicable SEC RIC Rules as well as § 4.5 amendments.33 Another certain other conditions; (2) all CPOs outside the scope of this rulemaking. The Commission previously determined will be permitted to use third-party 31 7 U.S.C. 19(a). It is the Commission’s intent service providers to maintain their that if any portion of this rulemaking is held that, given its new responsibilities books and records; and (3) the signed invalid, such invalidity shall not affect other under the Dodd-Frank Act, and the acknowledgement requirement is being provisions or applications of the Commission’s changes in the markets within the regulations which can be given effect without the Commission’s responsibilities in recent rescinded for all CPOs. The reasoning invalid provision or application, including without underlying each of the enumerated limitation other amendments to part 4 in this or the years, the operator of a RIC that engages changes is discussed infra. February 2012 Final Rule, and to this end each in more than a de minimis amount of Accordingly, a CPO of a RIC may provision of this final rule is severable. non-bona fide hedging commodity 32 ICI Letter, comment letter from U.S. Chamber comply with part 4 requirements interest transactions or markets itself as of Commerce (April 24, 2012) (Chamber Letter); a commodity pool or other commodity applicable to all CPOs or elect to comment letter from Dechert LLP and Clients (April comply through substituted compliance, 24, 2012) (Dechert Letter). investment must register as a CPO and 39 subject to the conditions specified in 33 Chamber Letter. This commenter also stated file form CPO–PQR. amended § 4.12(c). In the latter case, the that harmonization is unripe because, among other things, regulations needed to complete the On December 12, 2012, the U.S. District Court for CPO of a RIC will be subject to the implementation of Title VII of Dodd-Frank are still the District of Columbia affirmed the 2012 Final following requirements: not finalized. To the extent this commenter was Rule’s amendments to § 4.5 and adoption of § 4.27 • The CPO of a RIC will be required referring to the finalization of the Commission and as applicable to CPOs of RICs. The District Court’s SEC’s further definition of ‘‘swap,’’ that definition to file notice of its use of the substituted opinion is available at https://ecf.dcd.uscourts.gov/ has now been finalized. This commenter and others cgi-bin/show_public_doc?2012cv0612-42. compliance regime outlined in § 4.12 have stated that the Commission could not, prior to 34 ICI Letter. the adoption of that final definition, properly with NFA; 35 ICI Letter; comment letter from American Bar consider the costs and benefits of the amendments • The CPO of a RIC with less than Association Federal Regulation of Securities to § 4.5 and proposed, therefore, the exclusion of Committee, Business Law Section (April 24, 21012) three years operating history will be swaps from the thresholds above which the (ABA Letter); comment letter from AXA Equitable required to disclose the performance of operator of a RIC must register as a CPO. As the Funds Management Group, LLC (April 24, 2012) Commission explained in the 2012 Final Rule all accounts and pools that are managed (AXA Letter); comment letter from The Association amending § 4.5, however, the costs and benefits by the CPO and that have investment of Institutional Investors (April 24, 2012) (AII were sufficiently clear at that time. The Letter); comment letter from Investment Adviser objectives, policies, and strategies Commission explained that swap trading above a de Association (April 24, 2012) (IAA Letter); NYCBA substantially similar to those of the minimis threshold implicates its regulatory Letter; Fidelity Letter. interests, whereas trading below the threshold may offered pool; 36 Comment letter from Katten Muchin Rosenman • The CPO of a RIC will be required not. To permit unlimited swap trading without registration would undermine the regulatory LLP (April 24, 2012) (Katten Letter). to file the financial statements with the interest described throughout the 2012 Final Rule 37 SIMFA AMG Letter. National Futures Association (‘‘NFA’’) release. Consistent with the Commission’s 38 Fidelity Letter; NYCBA Letter; ICI Letter. that it prepares pursuant to its expectation at the time of the 2012 Final Rule 39 See, 2012 Final Rule, supra note 6, 77 FR 11252 obligations with respect to the SEC; and amending § 4.5, the 2012 Final Rule further (Feb. 24, 2012); corrected by 77 FR 17328 (Mar. 26, • defining ‘‘swap’’ did not further define the term 2012); affirmed by U.S. District Court for the If the CPO of a RIC uses or intends ‘‘swap’’ in a manner that would have materially District of Columbia (Dec. 12, 2012), available at to use third-party service providers for affected the Commission’s decision to amend § 4.5. Continued

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Regarding obligations of registered or sale of a , including shares of permitted to use a Disclosure Document CPOs, the Commission notes the a RIC, by means of a materially for up to 12 months. In addition, for concerns of commenters that dual misleading prospectus and impose CPOs of RICs, the Commission has registrants may be unable, or encounter liability for the use of such a determined that compliance with the substantial difficulty trying, to comply prospectus.41 Section 4.26(d) requires a applicable timeframes under the regime with both the CFTC and SEC regulatory CPO to submit all Disclosure Documents administered by the SEC under SEC RIC regimes were they both required in their to NFA prior to distributing the Rules will be deemed to satisfy the current state. The Commission believes document to participants and to submit timing requirements in §§ 4.26(a) and that harmonization will reduce or updates to Disclosure Documents to 4.36. eliminate such difficulty. NFA that correct material inaccuracies As a general matter of policy, the This rule release is focused on the or incompleteness within 21 days of Commission believes that sixteen harmonization of the Commission’s becoming aware of any defects. months is not an optimal time period for compliance obligations under part 4 of Registration statements for RICs are providing updated information to its regulations with the requirements required to be filed with the SEC prior participants. This is of particular under the SEC RIC Rules. To that end, to becoming effective,42 and the RIC concern with respect to past the Commission has considered the Rules prescribe the timeframes for performance information and financial various provisions of part 4 and sought effectiveness of registration statement statements. The more distant the update to address conflict, inconsistency, and amendments after filing with the SEC.43 of disclosure from the date of the pool’s duplication with SEC-administered In the Proposal, to facilitate most recent financial statements, the disclosure, reporting and recordkeeping compliance with part 4 requirements for less meaningful the information by RICs. Commission staff has also CPOs of RICs, the Commission proposed becomes to prospective participants engaged in ongoing discussions with amending § 4.26 and § 4.36 to allow deciding whether to invest. The their counterparts at the SEC. The CPOs and CTAs to use Disclosure Commission does believe, however, that Commission believes that, with the final Documents up to twelve months from efficiency can be gained by extending rules being adopted today, it has the date of the document. In response to the time within which CPOs must harmonized its compliance obligations comments received, the Commission is update their Disclosure Documents from with those of the SEC to the fullest also addressing in this final rule nine months to twelve months, as that extent practicable consistent with § 4.26(c), which governs the time period time period aligns with the time period achieving the regulatory objectives of its for correcting materially inaccurate or mandated for filing annual financial part 4 regulations and its experience to incomplete disclosure, and § 4.26(d), statements, which must be disclosed date with CPOs of RICs. which requires Disclosure Documents within the Disclosure Document. In the and updates to be filed with NFA. B. Disclosure Requirements Commission’s judgment, such efficiency 1. Effective Time Period for Disclosure justifies some delay in updating the a. Filing and Updating Disclosure Documents Disclosure Document and the currency Documents Commenters were generally of the information thus available to Currently, § 4.26(a)(2) states that ‘‘[n]o supportive of the Commission’s participants. The Commission believes commodity pool operator may use a proposed amendments to §§ 4.26 and that the information available to Disclosure Document or profile 4.36,44 but also expressed concerns. participants will be sufficiently timely document dated more than nine months Regarding the timing of disclosure, for to enable participants to make informed prior to the date of its use.’’ An identical example, some commenters suggested investment decisions. Consistent with provision applying to CTAs can be that the Commission extend the this determination that a twelve month found in § 4.36(b). These provisions are deadline applicable to all CPOs for updating cycle provides participants designed to ensure that required using Disclosure Documents to sixteen with information in a sufficiently timely disclosure materials remain current, months from the date of the document manner, while also aligning with the complete, and accurate over time. in order to accommodate the SEC’s 120- larger CPO-industry twelve month Similarly, § 10(a)(3) of the Securities Act day allowance under Rule 8b–16.45 One regulatory calendar, the Commission is effectively requires an annual update of commenter stated that the Proposal extending to twelve months the an open-end RIC’s registration ‘‘provides no rationale for imposing the Disclosure Document update cycle statement, and provides 4 months after updating requirements of § 4.26(a)(1) on requirement for all CPOs. the end of the fiscal year in order to do 40 RICs’’ and does not ‘‘address the The Commission recognizes, however, so. that, absent harmonization, dual Additionally, § 4.26(c) states that if a substantial costs these updates would 46 registrants may be required to comply CPO becomes aware of any impose.’’ After careful consideration, the with the disparate deadlines applicable incompleteness or material inaccuracy Commission has determined to adopt in its Disclosure Document, the CPO under § 4.26 and the updating process the amendment of §§ 4.26(a) and 4.36 as must correct the defect and distribute implemented by the SEC pursuant to proposed. CPOs and CTAs will be § 10(a)(3) of the Securities Act 47 and the correction to participants within 21 48 days of becoming aware of the defect. SEC Rule 485 thereunder. As noted 41 Section 12(a)(2) of the Securities Act. See also, Section 4.26(c)(2) lists acceptable means above, § 4.26, as amended, requires a Section 17(a)(2) of the Securities Act (unlawful to CPO to update a pool’s Disclosure of distributing the correction. The obtain money or property by means of materially federal securities laws prohibit the offer misleading statements and omissions in the offer or Document within 12 months of that sale of securities). Document’s date of first use. As 42 https://ecf.dcd.uscourts.gov/cgi-bin/show_public_ See, e.g., Section 8(a) of the Securities Act described above, § 10(a)(3) of the doc?2012cv0612-42. (effective date of registration statement shall be the Securities Act and Securities Act Rule twentieth day after filing or an earlier date 40 Section 10(a)(3) of the Securities Act provides determined by the SEC). 485 requires open-end RICs to amend generally that when a prospectus is used more than 43 their registration statements annually nine months after the effective date of a registration See, Securities Act Rule 285, 17 CFR 230.485. statement, the information contained in the 44 AXA Letter; Steben Letter; IAA Letter. prospectus shall be as of a date not more than 45 NYCBA Letter SIFMA AMG Letter; AII Letter. 47 15 U.S.C. 77j–24. sixteen months prior to its use. 46 SIFMA AMG Letter. 48 17 CFR 230.485.

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and provides four months after the end In light of the substantively similar existing Disclosure Documents—would of the fiscal year to do so. goals of the two regulatory regimes to not be subject to NFA review, as Because the Commission is declining ensure that participants receive accurate § 4.26(d)(2) provides that updates may to adopt a sixteen-month update period information in a timely manner, and be filed with NFA at the same time they for Disclosure Documents, absent other recognizing that, absent relief from are distributed to participants.55 relief, CPOs of open-end RICs would § 4.26(c), CPOs of RICs could be Another commenter stated that the have two different filing deadlines required to provide an additional timelines for review between the SEC which would limit the ability for the mailing to participants, the Commission and CFTC requirements are different CPO to take advantage of operational has determined to deem CPOs of RICs and conflicting. For example, if the NFA efficiencies that might be available if the that adhere to the disclosure requests material changes, a CPO of a Commission’s deadlines coincided with requirements under SEC RIC Rules RIC may have to file the amendment those of the SEC. The Commission compliant with § 4.26(c). Subject to with the SEC, triggering SEC review and believes that the burden associated with additional experience that the potentially disrupting the issuance of requiring CPOs of open-end RICs to Commission expects to acquire shares. The commenter suggested that, comply with two different updating regarding the operation and oversight of should the CFTC decide to retain the schedules for their Disclosure CPOs of RICs, the Commission, at this NFA review requirement, it should limit Documents is not justified by the benefit time, believes that correcting any the scope of the review to the part 4 of more frequent disclosures. Thus, the inaccuracies within this pre-scheduled disclosure requirements. This Commission has determined to permit and near-term update should be commenter further suggested that the CPOs of open-end RICs to satisfy these considered to be timely. Moreover, the SEC, CFTC, and NFA coordinate obligations through substituted Commission does not believe that the policies and processes to ‘‘avoid compliance in accordance with the schedule for updates imposed by the conflicting comments and prevent timeframe administered by the SEC. The SEC will impair the Commission’s multiple filings and back-and-forth’’ Commission believes that this is regulatory interest in ensuring that during the review process.56 appropriate because the past prospective and current participants in The Commission has determined that, performance information required to be a commodity pool receive accurate and although such disclosures must be made disclosed by CPOs of open-end RICs complete information. As such, the available to NFA to enable NFA to will differ from that generally required Commission believes that substituted discharge its duty to monitor and of CPOs, and, as discussed infra, CPOs compliance is appropriate with respect examine CFTC registrants during an of open-end RICs will not be required to to the updating of disclosures to examination, it will not be necessary to separately submit their disclosures participants and, therefore, the file those documents with NFA documents for review by the NFA. Commission has determined to deem according to the schedules provided in CPOs of RICs compliant with the part 4 of the Commission’s regulations 2. Interim Updating of Disclosure or concurrent with their filing with the Documents provisions of § 4.26, provided that they are in compliance with the regime SEC, and those documents will not be Section 4.26(c) requires a CPO to administered by the SEC under SEC RIC subject to NFA approval. The correct material inaccuracies in a Rules. Commission has decided that CPOs of Disclosure Document within 21-days of RICs that take advantage of the relief the date upon which the CPO first 3. Review of Disclosure Documents by provided under this rule must file a becomes aware of the defect. The NFA notice with NFA so that NFA and the purpose of the 21-day window in which Many commenters who addressed Commission can identify which CPOs to correct material inaccuracies is to § 4.26 were concerned that NFA’s are claiming such relief and are not provide participants with timely review process (§ 4.26(d)) is required to comply with the specific corrected information. As described unnecessary and duplicative, and thus provisions of §§ 4.21, 4.24, 4.25, and above, the federal securities laws should not be required.52 Commenters 4.26. Providing this notice to NFA will prohibit the offer or sale of the shares of said that this additional review process facilitate compliance by market a RIC by means of a materially could result in regulatory delays, create participants, assist the Commission’s misleading prospectus and impose investor confusion, tax NFA’s resources, monitoring of the compliance of its liability for the use of such a prospectus. prevent funds from issuing shares, and registrants over time, and facilitate the One commenter noted that the 21-day potentially subject funds to conflicting enforcement of its rules with respect to period under § 4.26(c)(1) is not required reviews from securities and derivatives all CPOs. under SEC RIC Rules and that RICs regulators.53 Some commenters noted In sum, the Commission has which do not normally supplement that NFA’s review process would be determined to deem CPOs of RICs their prospectuses would be required to particularly challenging for RICs that compliant with the provisions of § 4.26, do so in order to comply with § 4.26.49 make offerings through variable provided that they are in compliance Another commenter suggested that products, as the distribution with the regime administered by the existing securities law obligations for and updating of prospectuses for such SEC under SEC RIC Rules. RICs regarding material misstatements RICs must be coordinated with their or omissions should satisfy § 4.26, and b. Delivery and Acknowledgement of affiliated insurance companies, and that Disclosure Documents thus ‘‘a simple exemption from the Part the Proposal does not address this 4 requirements is appropriate.’’ 50 Currently, § 4.21 requires a CPO to issue.54 One commenter also requested Another commenter suggested that RICs deliver a Disclosure Document to each confirmation that ‘‘sticker’’ participant, and obtain from that that are in compliance with SEC supplements—supplements tacked onto updating rules should be deemed prospective participant a signed 51 acknowledgment of receipt of the compliant with § 4.26(a) and (c). 52 AXA Letter; ABA Letter; Katten Letter; ICI Letter; SIFMA AMG Letter. Disclosure Document before accepting 49 SIFMA AMG Letter. 53 AXA Letter; ABA Letter; NYCBA Letter; ICI 50 ABA Letter. Letter; SIFMA AMG Letter. 55 ABA Letter. 51 SIFMA AMG Letter. 54 AXA Letter; ICI Letter. 56 SIFMA AMG Letter.

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or receiving funds from that participant. that the statutory prospectus and other Commission’s regulations would require The federal securities laws require information are available on an Internet any such filings to be prepared at the delivery of a ‘‘statutory’’ prospectus to Web site, the address of which is legal entity level, not at the series level. each RIC investor no later than the provided on cover page or at the The Commission recognizes that under confirmation of the transaction and do beginning of the summary prospectus.61 part 4, RICs would be required to not require signed acknowledgment Any Web site permitted under the SEC undertake substantial efforts to prior to receipt of funds from an RIC Rules will also be deemed reorganize their filings to comply with investor.57 compliant with the provisions of § 4.21 both regimes.65 However, because the The Commission proposed to modify SEC regulations further provide that the Commission has already determined to § 4.12(c) to allow the CPO of a RIC to RIC must provide paper copies of the accept compliance with the regime claim relief from § 4.21. The proposed statutory prospectus, SAI, and administered by the SEC as substituted revisions to § 4.12(c) would enable shareholder reports upon request at no compliance with the Commission’s CPOs of RICs to claim relief from § 4.21 cost to the requestor.62 As the SEC RIC compliance program, the Commission provided that the Disclosure Document rules require that a participant receive believes that such entities will continue is readily available on the RIC’s Web substantial information about the fund to be able to make such filings site, or that of its designee. (information that, as discussed above, consistent with SEC guidance regarding Some commenters suggested a broad would be deemed compliant with the same. exemption from § 4.21 for all CPOs of Commission regulations under part 4), RICs.58 Another commenter noted that a the Commission believes that this SEC c. Use of the Summary Prospectus listed, closed-end RIC does not normally requirement is commensurate with the Commenters also expressed concern post its prospectus or annual report provisions of § 4.21 in that it provides about continuing to use the Summary online when not conducting an offering, a mechanism through which Prospectus adopted by the SEC.66 and suggested that such funds should be information about the investment in the Because the SEC limits the information fully exempted from § 4.21. This RIC is disseminated to prospective allowed in the Summary Prospectus, a commenter also requested confirmation participants. Under both part 4 of the commenter requested clarification that that: (a) the Web site may be the main Commission’s regulations and the SEC’s the CFTC is not requiring that any of the Web site for the RIC’s fund family or the disclosure regime, information is made specific part 4 disclosure requirements RIC’s distributor, so long as the readily available to prospective be included in that document.67 Disclosure Document page is readily investors in the pools. Therefore, the Another commenter suggested that the available from the main Web site; (b) Commission believes it is appropriate to Commission allow registrants the password-protected Web sites (used by deem entities that comply with SEC of providing a combined document or disclosure delivery requirements to be privately-offered funds) will remain maintaining separate SEC- and CFTC- compliant with their disclosure delivery acceptable under the Commission’s required disclosures.68 Several obligation under part 4. rules; and (c) the distributor for a RIC commenters urged the Commission to would be permitted to maintain the Web With respect to closed-end funds, under the Commission’s regulations, provide assurances to CPOs of RICs that site for a RIC under the Commission’s Summary Prospectus documents may 59 CPOs are not required to maintain a rules. still be utilized by funds in the format One commenter did not support the current Disclosure Document for a pool they currently use.69 Another proposed amendments. This commenter if they are not soliciting participants for commenter expressed concern that claimed that the requirements are that pool.63 Consistent with the requiring RICs to highlight new and duplicative, as the information required Commission’s reasoning regarding open- amended disclosures under § 4.26 to be posted on a Web site is already end RICs, provided that the closed-end ‘‘would add unnecessary costs to the provided to investors through various fund is operated consistent with its update process and could prove SEC regulations. The commenter also obligations under SEC RIC Rules, the confusing to RIC shareholders’’ because suggested that compliance with § 4.12 Commission believes that it is such requirements are ‘‘not consistent may harm investors by broadly appropriate to deem CPOs of closed-end with past practices.’’ 70 disclosing a fund’s trading strategy.60 funds compliant with the requirements The Commission has determined to of § 4.21. The Commission has determined to deem CPOs of RICs compliant with the Additionally, for those funds that are deem CPOs of RICs compliant with the provisions of § 4.21 provided that the organized as series entities with inter- provisions of §§ 4.24 and 4.25, provided CPO provides disclosure to participants series limitation of liability, the SEC that they are in compliance with the and prospective participants consistent permits multiple series to be included disclosure requirements of the with the regime administered by the in a single registration statement, but Securities Act, the ’40 Act, and the SEC under SEC RIC Rules. The SEC RIC permits reporting and disclosure to be applicable SEC RIC Rules. By deeming Rules permit open-end RICs to send or accomplished on a series by series basis. such CPOs compliant, the ability to use give a summary prospectus, provided Under the Commission’s regulations, a statutory prospectus and/or Summary the pool is considered to be the discrete Prospectus in a format recognizable to 64 57 Securities Act § 5(b)(2) (unlawful to carry legal entity. As such, the both funds and their participants has through the mails or in interstate commerce any not been disturbed. security for the purpose of sale or delivery after sale 61 See, 17 CFR 230.498. unless accompanied or preceded by a ‘‘statutory’’ 62 Id. 65 The Commission reaffirms its position with prospectus, i.e., a prospectus that meets the 63 See, 17 CFR 4.21 (requiring delivery of a respect to the entity qualification of ‘‘pool’’ as requirements of § 10(a) of the Securities Act). Open- Disclosure Document concurrent with the delivery end RICs may satisfy the prospectus delivery embodied in CFTC Staff Interpretative letter 10–29, of a subscription agreement to prospective available at http://www.cftc.gov/ucm/groups/ obligation by sending or giving a summary participants). prospectus to investors and providing the statutory public/@lrlettergeneral/documents/letter/10-29.pdf. 64 The Commission has determined that, per prospectus on an Internet Web site. Rule 498 under 66 17 CFR 230.498. Regulation 4.20(a)(1), a pool is considered to be a 67 the Securities Act. 17 CFR 230.498. separately cognizable legal entity. See, CFTC Staff SIFMA AMG Letter. 58 Katten Letter; ABA Letter. Interpretative letter 10–29, available at http:// 68 MFA Letter. 59 SIFMA AMG Letter. www.cftc.gov/ucm/groups/public/@lrlettergeneral/ 69 ABA Letter; Katten Letter; NYCBA Letter. 60 AII Letter. documents/letter/10-29.pdf. 70 AXA Letter.

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d. Risk Statements and Legends mandated in § 4.24(a) on the cover page The Securities and Exchange Commission of a prospectus; the commenter and the Commodity Futures Trading Section 4.24(a)–(b) details specific Commission have not approved or disclosure statements that must appear suggested the Commission ensure that the SEC has issued such relief before disapproved these securities or determined if in a CPO’s Disclosure Document. The this prospectus is truthful or complete. Any Commission requires a specific imposing the combined statement representation to the contrary is a criminal 74 Cautionary Statement (§ 4.24(a)) to requirement. offense. appear prominently on the cover page of Other commenters objected to the 71 disclosure statements, including the 2. The Standard Risk Disclosure the Disclosure Document. Statement The Commission also requires certain Cautionary Statement in § 4.24(a), as Risk Disclosure Statements to be being ‘‘boilerplate,’’ ‘‘technical,’’ and Commenters also objected to the 75 displayed immediately following any ‘‘duplicative.’’ Commenters stated inclusion of the standard Risk disclosures required to appear on the that such language is inconsistent with Disclosure Statements found in cover page. The disclosures most the SEC’s ‘‘Plain English’’ disclosure § 4.24(b).80 Several commenters relevant to this rulemaking are found in requirements, which are designed to remarked that the CFTC-required § 4.24(b)(1).72 make prospectuses easier for investors disclosures, designed for commodity to read, and thus their inclusion may pools, are not appropriate for funds 1. The Standard Cautionary Statement create investor confusion.76 because (a) SEC regulations prohibit a The Commission proposed that, in With respect to the prescribed fund from maintaining high degrees of lieu of the standard Cautionary cautionary statement required under ; and/or (b) SEC regulations do Statement, the cover page of the RIC’s § 4.24(a), the Commission finds that the not allow funds to restrict redemption prospectus may contain a statement that statement as required by the SEC 77 rights.81 These commenters contended combines the language required by performs a similar function as that that requiring such ‘‘inappropriate’’ § 4.24(a) and Rule 481(b)(1) under the required by the Commission, and has disclosures would be misleading and Securities Act.73 The Proposal required concluded that the cautionary statement confusing for investors. the Risk Disclosure Statements to be prescribed in SEC Rule 481 under the In addition, one commenter presented concomitantly with SEC- Securities Act,78 with minor contended that because the risks required information in the RIC’s modifications, addresses the described in § 4.24(b) are non-principal prospectus. Commission’s concerns regarding the risks for most mutual funds, and One commenter claimed that the SEC need for CPOs to adequately apprise because the SEC has indicated that only must also grant relief to permit investors that the Commission has not principal risks should be disclosed in inclusion of the Cautionary Statement approved a particular disclosure that is the summary prospectus, RICs should provided to prospective participants. be exempt from these requirements. 71 The Cautionary Statement reads as follows: Therefore, the Commission has This commenter also noted that THE COMMODITY FUTURES TRADING determined that it would be acceptable ‘‘[e]xhaustion of a fund’s assets is COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR for CPOs of RICs to include the CFTC essentially impossible’’ under the ’40 HAS THE COMMISSION PASSED ON THE in the statement prescribed by the SEC Act.82 Another commenter requested ADEQUACY OR ACCURACY OF THIS under Securities Act Rule 481,79 such clarification about the placement of DISCLOSURE DOCUMENT. that the statement would read either: required disclosures. Specifically, the 72 Section 4.24(b)(1) reads as follows: YOU SHOULD CAREFULLY CONSIDER The Securities and Exchange Commission commenter noted that putting the WHETHER YOUR FINANCIAL CONDITION and the Commodity Futures Trading standard CFTC risk disclosures in a PERMITS YOU TO PARTICIPATE IN A Commission have not approved or RIC’s summary prospectus may violate COMMODITY POOL. IN SO DOING, YOU SHOULD disapproved these securities or passed upon SEC Rule 498, which prohibits BE AWARE THAT COMMODITY INTEREST the adequacy of this prospectus. Any information other than that prescribed TRADING CAN QUICKLY LEAD TO LARGE representation to the contrary is a criminal LOSSES AS WELL AS GAINS. SUCH TRADING offense. by that Rule from inclusion in the LOSSES CAN SHARPLY REDUCE THE NET ASSET summary prospectus.83 VALUE OF THE POOL AND CONSEQUENTLY or Commenters also requested that the THE VALUE OF YOUR INTEREST IN THE POOL. Commission allow RICs to use the term IN ADDITION, RESTRICTIONS ON REDEMPTIONS 74 ICI Letter. MAY AFFECT YOUR ABILITY TO WITHDRAW ‘‘fund’’ instead of ‘‘pool’’ in the 75 ABA Letter; Dechert Letter; Fidelity Letter; AII YOUR PARTICIPATION IN THE POOL. Cautionary Statement as well as any Letter; SIFMA AMG Letter. FURTHER, COMMODITY POOLS MAY BE 76 AXA Letter; ABA Letter; Dechert Letter; AII mandated disclosure statements, as fund SUBJECT TO SUBSTANTIAL CHARGES FOR Letter. investors are unfamiliar with the term MANAGEMENT, AND ADVISORY AND 77 BROKERAGE FEES. IT MAY BE NECESSARY FOR Securities Act Rule 481 (17 CFR 230.481) ‘‘pool’’ and may be confused by such 84 THOSE POOLS THAT ARE SUBJECT TO THESE requires that the outside front cover page of a language. CHARGES TO MAKE SUBSTANTIAL TRADING prospectus contain a legend that indicates that the The standard risk disclosure PROFITS TO AVOID DEPLETION OR SEC has not approved or disapproved the securities or passed upon the accurace or adequacy of the statement under § 4.24(b) sets forth EXHAUSTION OF THEIR ASSETS. THIS standard disclosures of risks associated DISCLOSURE DOCUMENT CONTAINS A disclosure in the prospectus and that any contrary COMPLETE DESCRIPTION OF EACH EXPENSE TO representation is a criminal offense. The legend with the use of commodity interests, BE CHARGED THIS POOL AT (insert page number) may be one of the two following statements in clear including generic discussions of AND A STATEMENT OF THE PERCENTAGE and concise language: liquidity, counterparty RETURN NECESSARY TO BREAK EVEN, THAT IS, The Securities and Exchange Commission has not TO RECOVER THE AMOUNT OF YOUR INITIAL approved or disapproved these securities or passed 80 INVESTMENT, AT PAGE (insert page number). upon the adequacy of this prospectus. Any AXA Letter; ABA Letter; Dechert Letter; Fidelity Letter; AII Letter; NYCBA Letter; SIFMA 73 The proposed rules provided suggested representation to the contrary is a criminal offense; AMG Letter. language in two examples; for instance, one or 81 example states: ‘‘The Securities and Exchange The Securities and Exchange Commission has not AXA Letter; ABA Letter; Dechert Letter; Commission and the Commodity Futures Trading approved or disapproved these securities or NYCBA Letter; SIFMA AMG Letter; ICI Letter. Commission have not approved or disapproved determined if this prospectus is truthful or 82 Dechert Letter. these securities or this pool, or passed upon the complete. Any representation to the contrary is a 83 AXA Letter. adequacy or accuracy of this prospectus. Any criminal offense. 84 AXA Letter; Dechert Letter; SIFMA AMG representation to the contrary is a criminal offense.’’ 78 17 CFR 230.481(b)(1). Letter; comment letter from Advisers, Inc. See Proposal, supra note 23, 77 FR at 11351. 79 17 CFR 230.481(b)(1). (April 24, 2012) (Invesco Letter); ICI Letter.

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creditworthiness, and limits on the followed, trading structures used, and may be issued hereafter, concerning ability to alter the terms of certain swap investment activities of the offered pool. these disclosure requirements, which agreements.85 Because open-end RICs One commenter suggested that the the Commission will evaluate for are required to honor redemption risks required to be disclosed pursuant consistency with its own regulatory requests within 7 days,86 the to the SEC’s disclosure requirements interests. The Commission understands, Commission believes that, absent provide comparable information to that for example, that the Division of information to the contrary, the generic mandated by the Commission’s at the SEC discussion of risks required as part of regulations.89 That commenter also intends to issue additional guidance to the standard risk disclosure statement suggested that the Commission should RICs regarding compliance with certain under § 4.24(b) may differ with respect exempt CPOs of RICs from the risk aspects of the SEC RIC Rules. to RICs, in that investor liquidity is disclosure requirements set forth in necessarily required as a function of § 4.24(g) because they are generic and fulfilling the redemption obligations are required to appear in a single section f. Break Even Disclosure under the ’40 Act. Therefore, the risk of the Disclosure Document rather than Section 4.24(d)(5) requires CPOs to that a participant will be unable to in various sections of the disclosure as include in the forepart of the Disclosure redeem in a timely manner appears to permitted by the SEC. Document the break-even point per unit be mitigated. Further, with respect to The Commission believes that, of initial investment. Section 4.10(j) closed-end funds, because interests in although the CPOs of RICs may elect to defines the break-even point as ‘‘the such funds are generally not redeemed comply with §§ 4.24, 4.25 and 4.26 trading profit that a pool must realize in directly from the fund, but rather are through substituted compliance, the the first year of a participant’s traded in the secondary market, it disclosure provided by CPOs of RICs to investment to equal all fees and would appear that the risks discussed in prospective participants should include expenses such that such participant will the prescribed risk disclosure statement true, accurate, and complete recoup its initial investment, as under § 4.24(b) may not be precisely information describing the commodity- calculated pursuant to rules applicable to their operation. For the interest activities of the pool, including promulgated by a registered futures foregoing reasons, the Commission a discussion of the material risks of association pursuant to section 17(j) of believes that the specific risks those assets and activities. The the Act.’’ delineated in the prescribed cautionary Commission understands that SEC The Commission proposed to statement may not reflect those forms N–1A and N–2 require disclosure consider the ‘‘forepart’’ of the document associated with investment in a RIC, of the principal risks associated with to be the section immediately following and therefore, has determined not to investment in the RIC and that, to the all disclosures required by SEC form N– require CPOs of RICs to include the extent that the use of commodity 1A. The Commission did not propose to interests creates such a risk, it must be standard risk disclosure statement relieve RICs of the requirement to disclosed to prospective investors. This required under § 4.24(b).87 Having provide the break-even point disclosure, is consistent with the requirements set considered the comments received as however, stating that ‘‘[the] Commission forth in § 4.24(g), which also requires well as the redemption requirements of continues to believe that the inclusion the disclosure of the principal risks of RICs under the ’40 Act, the Commission of . . . the break-even point . . . is a investing in the pool, and which has determined to deem CPOs of RICs necessary disclosure because, among mandates that such disclosures be compliant with the requirements of other requirements, it mandates a appropriately tailored to reflect the risks § 4.24(a) and (b) provided that the CPO greater level of detail regarding associated with the investment strategy complies with the related regime brokerage fees and does not assume a and instruments traded by the offered administered by the SEC pursuant to the specific rate of return.’’ pool. Moreover, the Commission does One commenter supported the SEC RIC Rules, including disclosure not believe that the fact that the requirements in Section 10 of the Commission’s position that the break- disclosures may appear in multiple even table should be included in the Securities Act and other provisions of places under the SEC’s disclosure the Securities Act and ’40 Act,, Rule prospectus of an investment company.91 88 requirements is inconsistent with the However, other commenters generally 498 under the Securities Act, and Commission’s regulations, as such forms N–1A and N–2. believed that RICs should be exempt regulations do not require that such from disclosing the break-even point.92 disclosures appear in a single section of Some commenters claimed that the the Disclosure Document. The e. Risk Disclosure break-even point and analysis serves the Commission believes that the disclosure same purpose as the tabular Section 4.24(g) requires a discussion requirements on SEC forms N–1A and presentation of fees required by SEC of the principal risk factors of N–2, consistent with guidance from SEC regulations, and thus including such participation in the offered pool. It staff, including the letter issued by the information would be duplicative and further requires that the discussion must Division of Investment Management in unnecessary.93 One commenter believed 90 include, without limitation, risks 2010, should satisfy the Commission’s that the current SEC-required relating to volatility, leverage, liquidity, concern that participants receive disclosures are better suited to funds and counterparty creditworthiness, as complete and accurate disclosure about ‘‘given that they are continually offered applicable to the trading programs the risks associated with investment in and have daily changing asset levels.’’ commodity interests. CPOs of RICs must This commenter also believed that the 85 17 CFR 4.24(b). likewise comply with any applicable CFTC did not identify why the break- 86 15 U.S.C. 80a–22(e). SEC guidance, including guidance that even point is necessary or why the fact 87 Because the Commission has determined not to that it does not assume a rate of return require CPOs of RICs to include the Standard Risk 89 ICI Letter. Disclosure statement in their Disclosure 90 Letter from the Division of Investment 91 Documents, the Commission does not have to Management, Securities and Exchange Commission, Steben Letter. address the issue of using the term ‘‘fund’’ in lieu to the Investment Company Institute, July 30, 2010, 92 AXA Letter; ABA Letter; Dechert Letter; ICI of ‘‘pool’’ within the risk disclosure statement. available at http://www.sec.gov/divisions/ Letter; NYCBA Letter. 88 17 CFR 230.498. investment/guidance/ici073010.pdf. 93 AXA Letter; ABA Letter; ICI Letter.

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makes the disclosure more meaningful other pool it operates. By contrast, the which could operate to their for investors.94 Some commenters SEC’s regulations do not require RICs to competitive disadvantage.102 contended that including the break-even disclose past performance for any fund One commenter expressed concern point and analysis may undermine the other than the offered fund. Most of the that this provision does not accomplish SEC’s goal of providing comparable other performance-related disclosures the CFTC’s stated objective of providing disclosures and make it harder for are similar between the two regulatory material information while reducing potential investors to compare regimes. However, some information is duplicative disclosure.103 Another information across funds.95 Another presented in a different manner. For commenter suggested that funds with commenter argued that the Commission example, whereas § 4.25 requires fewer than three years’ performance is incorrect in suggesting that the SEC’s disclosure of the pool’s performance for should be required to disclose fee table requirements are based on the year-to-date and the most recent five information only for other funds with assumed rate of return, as form N–1A calendar years, Item 4(b)(2)(iii) of Form substantially similar objectives and requirements for fee disclosure in N–1A requires disclosure of average strategies that are managed by the same general do not assume a specific rate of annual total returns for the previous adviser.104 return.96 year, five years, and ten years (or the life Other commenters disagreed. One The Commission understands that the of the fund, if shorter than five or ten commenter suggested that while same types of fees and costs are years). allowing CPOs of RICs to show only the disclosed through SEC-required The Commission proposed to results of similar pools (as permitted by disclosures, even if in a different maintain the past performance the SEC) would lessen the burden on format.97 For example, § 4.24(i) requires disclosure requirements, but requested such firms, it ‘‘would also create a full and complete discussion of all comment on the advisability of doing interpretive questions’’ and allow funds management fees. Form N–1A, item 3 so. Most commenters suggested that the to exclude the performance of relevant requires similar disclosure. The Commission exempt RICs from pools.105 Another commenter Commission is persuaded by the disclosing past performance recommended that the Commission 98 commenters that the information information. Some commenters maintain the requirement, but limit the required by the SEC achieves claimed that the SEC generally does not scope of the disclosure to include past substantially the same purposes as the permit disclosure of the past performance information only for other break-even point analysis. The performance of funds other than the commodity pools listed with NFA by Commission has concluded that the offered fund, and that the CFTC’s the RIC/CPO. This commenter suggested disclosure required by the SEC is requirement to do so would cause funds that the Commission encourage the SEC sufficient to communicate the fees and to be in a position of having to choose to provide no-action relief and to do so 99 costs associated with a RIC that engages which regulator’s rules to violate. on a ‘‘global’’ basis, as opposed to a Numerous commenters highlighted a in derivatives. Therefore, the case-by-case basis.106 footnote in the Proposal that said the Commission has determined to deem Some commenters suggested that the Commission had had preliminary the CPOs of RICs compliant with the CFTC exempt RICs from the discussions with the SEC regarding past requirements under § 4.24(d)(5) of the requirement to disclose aggregate gross performance disclosures and that the Commission’s regulations contingent capital subscriptions.107 One SEC may consider no-action relief for upon their compliance with the SEC RIC commenter stated that such a dually-registered RIC/CPOs. These Rules. requirement is not practicable for open- commenters argued that it would ended RICs, which are publicly- g. Past Performance Disclosure unreasonable for the CFTC to expect offered.108 hundreds of funds (according to one Another commenter stated Section 4.24(n) requires CPOs to that the measurement ‘‘is meaningless to disclose past performance information commenter) to apply for no-action relief, stressing the inefficiencies and burdens fund investors, as subscriptions are in accordance with § 4.25. Section frequently offset . . . by 4.25(a) requires various disclosures, for RICs and for the SEC to comply with 109 such a volume of requests.100 Some redemptions.’’ including, but not limited to: aggregate One commenter believed that the gross capital subscriptions to the pool; commenters noted that the SEC is under no obligation to grant such relief, and differences in how the charts required the pool’s current ; the by SEC and CFTC regulations are largest monthly draw-down during the that even if it did, no-action letters are typically non-binding.101 Other calculated could result in an additional most recent five calendar years and preparation burden for RICs and year-to-date; the worst peak-to-valley commenters noted that even if the SEC does grant no-action relief for this additional confusion for investors, and draw-down during the most recent five suggested that the CFTC harmonize this calendar years and year-to-date; and the provision, such an action may create disparate treatment between RICs and requirement to the SEC’s disclosure. annual and year-to-date rate of return Similarly, the commenter suggested the for the pool for the most recent five RIC/CPOs that would confuse investors who are accustomed to the SEC’s Commission harmonize the different calendar years and year-to-date, methodologies of the CFTC- and SEC- including a bar graph depicting such provisions on performance disclosure. These commenters further noted that reporting requirements to avoid rates of return. Similar information is duplicative and confusing information. required for each account traded by the the dual requirements may complicate the registration process for RICs subject For example, the commenter noted that CPO or CTA on behalf of a client. past performance disclosures are Section 4.25(c) states that when the to the dual disclosure requirement, offered pool has less than a three-year 102 ABA Letter; Katten Letter. 98 AXA Letter; ABA Letter; Dechert Letter; Katten operating history, the CPO must 103 Letter; IAA Letter; Fidelity Letter; NYCBA Letter; Dechert Letter. disclose the past performance of each SIFMA AMG Letter. 104 ICI Letter. 99 AXA Letter; Dechert Letter; Katten Letter; 105 Steben Letter. 94 Dechert Letter. SIFMA AMG Letter; ICI Letter. 106 NFA Letter, Campbell Letter. 95 AXA Letter; NYCBA Letter. 100 Dechert Letter; IAA Letter; Fidelity Letter; 107 SIFMA AMG Letter, Dechert Letter. 96 ICI Letter. SIFMA AMG Letter; ABA Letter. 108 SIFMA AMG Letter. 97 See generally SEC form N–1A, Item 3. 101 Dechert Letter; Fidelity Letter. 109 Dechert Letter.

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required for different timeframes (the of the RIC.113 Recognizing that the SEC tailored to provide prospective SEC requires 1, 5, and 10 year approaches this issue differently, and participants with materially useful disclosure; the CFTC requires each of would not allow the performance information that otherwise would not be the most recent 5 years to be disclosures of each other pool the CPO mandatorily disclosed under the SEC’s disclosed).110 operates, the Commission understands regulatory regime.114 After consideration, and in light of the that the SEC’s Division of Investment Additionally, the Commission has comments received, the Commission Management would permit a subset of determined to deem CPOs of RICs has determined to deem CPOs of RICs that information to be disclosed. compliant with the remainder of § 4.25, with less than three years of Notably, it would permit all the which includes the requirement to performance history to be compliant disclosure of past performance that is disclose aggregate gross capital with § 4.25(c), provided that the CPO most germane to that of the offered pool subscriptions, to the extent that the disclose the performance of all accounts and provide precisely the information CPOs comply with applicable SEC and pools that are managed by the CPO that a prospective investor would need Rules. The Commission has reached this and that have investment objectives, to evaluate the historical behavior of the decision after considering the policies, and strategies substantially markets and instruments in which the requirements imposed by the SEC and similar to the offered pool.111 offered pool invests. As such, the concluding that the compliance The requirements for disclosure of Commission has made the judgment to obligations, with the limited exception commodity pools’ past performance confine this requirement for CPOs of noted above for CPOs of RICs with less exist because the Commission, drawing RICs with less than three years than three years of performance history, on its experience, believes they provide operating history to disclose generally achieve the same disclosure prospective participants with useful information concerning pools or objective. For example, although the information. The markets for accounts that are managed by the CPO timeframes for performance disclosure commodity interests are highly complex and that have substantially similar differ, with the Commission requiring 5 and require specialized knowledge to investment objectives, policies, and years of performance, whereas the SEC manage funds effectively. The strategies because it provides requires up to 10 years performance, the Commission continues to believe that prospective participants with additional Commission believes that the disclosure the presentation of past performance information regarding the historical required by the SEC provides a provides investors with information performance of accounts and pools reasonable means for ensuring effective regarding the experience of a CPO of a traded pursuant to the trading strategy disclosure of a pool’s past performance relatively new pool. A prospective used by the offered pool, and provides to a prospective participant as the investor will, as a result of this data regarding the experience of the information provided under the SEC’s requirement, be better able to assess the CPO trading substantially similar regulatory regime includes that required experience and expertise of the CPO as instruments and trading strategies. under part 4 of the Commission’s a result of this disclosure. As The Commission believes that this regulations. Additionally, the summarized by participants in the requirement appropriately addresses the Commission recognizes the challenges rulemaking process in which the Commission’s concerns about ensuring that a continuously offered RIC might Commission adopted § 4.25, while ‘‘past that prospective participants have the face in determining its aggregate gross performance data alone are not directly information that the Commission capital subscriptions. It may not be predictive of future trading results, . . . believes is essential to making informed possible for the CPO of a continuously past performance data provide decisions, prior to investing in a offered RIC to make such a information that is important in commodity pool, while respecting the determination given the continually evaluating a contemplated pool offering limitations on disclosure imposed by variable number of subscriptions and or trading program. For example, the SEC. CPOs of RICs with less than 3 redemptions. Therefore, the patterns of volatility and other trading years performance history will be Commission is deeming CPOs of RICs patterns in various market conditions required to identify which other compliant with the requirements of 112 may be evident.’’ accounts and pools have investment § 4.25 subject to compliance with the Although the SEC does not mandate objectives, policies, and strategies regime set forth under SEC RIC Rules, the disclosure of the performance of substantially similar to those of the with the exception of those pools which other funds and accounts, guidance offered pool. In contrast to § 4.25 as have a less than three year operating provided by the SEC’s Division of applied to CPOs generally, the history, the CPO of which must make Investment Management indicates that a Commission’s acceptance of substituted the additional disclosures as discussed RIC is permitted to show the compliance for CPOs of RICs introduces supra. performance of funds and accounts that a mildly subjective element that is are managed by the same investment otherwise absent under the regulation. h. Fee Disclosure adviser as the RIC and that have The Commission believes that any such Section 4.24(i) requires CPOs to investment objectives, policies, and subjectivity is tightly constrained due to include in the Disclosure Document a strategies substantially similar to those the guidance that SEC staff has provided complete description of each fee, in this area. The Commission believes commission, and other expense which 110 Id. that the result will be reasonably the CPO knows has been incurred or 111 With respect to the commenter that suggested expects to be incurred. This description requiring the disclosure of other pools that trigger 113 See, e.g., ITT Hartford Mutual Funds (pub. must include management fees, registration as a CPO with the Commission, the avail. Feb. 7, 1997) (fund may include in marketing Commission is concerned that it may result in materials performance information for other funds brokerage fees and commissions, any requiring the CPO of a RIC to disclose the managed by the same adviser with investment fees and commissions paid for trading performance of a pool or account that does not have objectives, policies, and strategies substantially advice, fees incurred within investment objective, policies, and strategies similar to those of the fund); Nicolas-Applegate substantially similar to those of offered pool, Mutual Funds (pub. avail. Aug. 6, 1996) (fund may investments in investee pools and thereby causing the CPO of the RIC to violate the include in prospectus information for private restrictions imposed by the SEC. accounts managed by the fund’s adviser with 114 See, the Commission’s discussion of costs and 112 60 FR 38148 (July 25, 1995); see also 68 FR investment objectives, policies, and strategies benefits, infra, regarding the costs associated with 42964 (July 21, 2003). substantially similar to those of the fund). this disclosure requirement.

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funds, incentive fees, any allocations recent fiscal years.118 The Commission Commission’s regulations. However, paid out to the CPO, commissions or believes that the disclosure required by this commenter suggested the other benefits paid to any person in the SEC is sufficient to communicate the Commission require additional connection with soliciting participation fees and costs associated with a RIC that ‘‘extensive, particularized disclosure in the pool, administrative fees and engages in derivatives, notwithstanding regarding [CFCs] used by investment expenses, offering expenses, and the fact that the format is different from companies’’ and claimed that ‘‘[s]uch clearance, exchange, and SRO fees, that generally prescribed by the information is needed . . . to help along with certain other fees as Commission with respect to CPOs and investors and regulators identify and applicable. CTAs. Therefore, the Commission has understand the expenses . . . and risks’’ Many of these fees are disclosed by determined to deem the CPOs of RICs associated with CFCs.122 RICs in SEC form N–1A. Item 3 of that compliant with the requirements under One commenter requested that the form requires a table of fees to be § 4.24(d)(5) of the Commission’s Commission exempt a CFC that is presented. The Commission proposed to regulations, provided that they comply wholly owned by a RIC from the require any such expenses not included with the SEC’s required disclosures. detailed disclosure and reporting in the fee table in Item 3 of Form N–1A requirements under part 4 because the i. Controlled Foreign Corporations to be disclosed in the prospectus in only recipients of such information (CFCs) addition to those fees and expenses would be the RIC that owns the CFC.123 required by both the CFTC and the SEC. In the 2012 Final Rule, the The Commission reaffirms its earlier Commenters generally contended that Commission explained its position on statements in the 2012 Final Rule that the CFTC’s requirement under the use of CFCs by RICs, stating that, RICs may continue to use CFCs and that § 4.24(i)(2)(ii) to disclose brokerage fees although the Commission does not such CFCs, depending on their and commissions should not apply to oppose the use of CFCs by RICs, it investment activities, may fall within RICs as such disclosures may be nevertheless believes that CFCs that fall the statutory and regulatory definitions misleading and/or confusing for fund within the statutory definition of of ‘‘commodity pool.’’ 124 The investors.115 One commenter noted that commodity pool may necessitate the provisions of SEC forms N–1A and N– if RICs decide that the inconsistent registration of a CPO.119 As such, 2 require a discussion of the investment disclosures warrant changing existing operators of such entities, whether or strategies of the offered funds and the practices, the process of separating out not the RIC that owns the CFC may be principal risk factors associated with prospectuses would carry ‘‘inevitable excluded under § 4.5, may be required investment in the fund.125 The initial and ongoing operational, legal, to register as CPOs with the Commission understands that if a RIC is compliance, and marketing costs.’’ 116 Commission. using a CFC to effectuate its investment Another commenter stated that the SEC As stated in the 2012 Final Rule, the strategy, the RIC is required to disclose has determined its fee disclosure regime Commission understands that a RIC may in its prospectus filed with the SEC to be adequate and that the CFTC has invest up to 25 percent of its assets in information about the RIC’s investment not identified any reason why a CFC, which then engages in actively in the CFC and the principal risks additional disclosure is necessary to managed derivatives strategies, either on associated with the CFC investment, protect investors. This commenter also its own or under the direction of one or including those related to swaps and 120 noted that expected fees, required to be more CTAs. other commodity interests. Accordingly, One commenter agreed with the disclosed under § 4.24(i)(1), are the Commission has determined that, if Commission’s position that RICs should predictive and could be misleading if the RIC provides full disclosure of be permitted to use CFCs under projected expenses are more favorable material information regarding the appropriate circumstances. This than the actual expenses incurred.117 activities of its CFC through its commenter further articulated their The Commission understands that the obligations to the SEC, the CFC will not belief that in certain situations same types of fees and costs are be required to separately prepare a additional disclosures regarding CFCs disclosed through SEC-required Disclosure Document that complies may be necessary, as the relationship disclosures, although perhaps in a with part 4 of the Commission’s between a RIC and related CFCs is different format, as discussed supra, regulations. Moreover, provided that the ‘‘significantly different than a typical with respect to the break-even RIC consolidates the financial fund-of-funds structure.’’ The information. The Commission, statements of the CFC with those of the commenter suggested that the moreover, is persuaded by the RIC in the financial statements that are Commission clarify that the RIC’s commenters that the information filed by the RIC with the NFA, the CFC Disclosure Document must contain a required under its break-even point and will not be required to file separate full discussion of this relationship and table is not meaningfully different from financial statements.126 Given the the impact of the CFC on the pool/RIC, what the SEC already requires. For foregoing, the Commission does not including on the performance of the example, the SEC-required disclosure 121 believe that additional relief pertaining permits brokerage fees to be included in pool/RIC. Another commenter noted that a CFC to CFCs is necessary. the cost of securities, whereas the may constitute a major investee pool Commission requires such fees to be C. Financial Reporting and, as such, the CPO of a RIC would disclosed separately. In both cases, have to include certain disclosures a. Periodic Financial Statements information regarding such fees is being regarding the CFC in its Disclosure Section 4.22 requires that every CPO provided to the investor. Moreover, item Document pursuant to the must periodically distribute to each 21 of SEC form N–1A requires a discussion of brokerage commissions 118 See SEC form N–1A, item 21. 122 Steben Letter. paid by the RIC during its three most 119 See 2012 Final Rule, supra note 6, 77 FR at 123 SIFMA AMG Letter. 11260. 124 See 2012 Final Rule, supra note 6, 77 FR at 115 ABA Letter; Dechert Letter; Katten Letter; 120 See 2012 Final Rule, supra note 6, 77 FR 11260. SIFMA AMG Letter. 11252 (Feb. 24, 2012) for a discussion of CFCs and 125 See Items, 4, 9, and 16(b) of SEC form N–1A; 116 ABA Letter. their use by RICs. and Item 8 and 17 of SEC form N–2. 117 Dechert Letter. 121 NFA Letter. 126 17 CFR 4.22(c)(8).

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participant in each pool that it operates daily performance information, which, the Commission does not believe that an Account Statement in the form and according to one commenter, achieves electronic delivery meaningfully with the content prescribed therein. the ‘‘key purpose of the Account changes the information available to Further, § 4.22(b) requires that Account Statement’’ on a more current basis.132 participants and may, in fact, make the Statements must be distributed at least Some commenters noted that there are information more readily accessible to monthly for pools with net assets greater significant similarities between the participants and the public in general. than $500,000 and at least quarterly for publicly available disclosures required The Commission also believes that such all other pools. by the SEC and the information required relief will eliminate the costs of The ’40 Act requires open-end RICs to in § 4.22, making the CFTC’s preparing monthly financial statements sell and redeem their shares based on requirement redundant.133 and thereby eliminate any marginal the current net asset values of those Several commenters contended that impact on CPOs of RICs related to shares,127 and these net asset values requiring Account Statements would compliance with § 4.22. may be posted on the RIC’s Web site or create a substantial burden on RICs that D. Books and Records otherwise made available to investors. would ultimately be passed on to RICs are also required to furnish semi- shareholders without any corresponding a. Location of Records annual and annual reports, including benefit.134 Another commenter was Sections 4.23 and 4.7(b)(4) require financial statements, to investors, as concerned that CPOs will now be that all CPOs maintain full books and well as to file quarterly schedules of required to create and maintain an records at the main business office of portfolio holdings and semi-annual and online reporting regime to provide the CPO. Such books and records must annual reports, including financial information that is already available to include the following: a detailed and statements, with the SEC (which are investors.135 One commenter itemized daily record of each publicly available to investors via the recommended that the Commission commodity interest transaction of the 128 EDGAR system). change the number of days that a CPO pool; all receipts and disbursements of The Commission proposed to exempt registered under § 4.7 has to prepare and money, securities, and other property; a the CPO of any RIC from the distribute quarterly statements from 30 participant ledger; copies of each distribution requirements of § 4.22, days to 45 days.136 confirmation of a commodity interest provided the Account Statements are The Commission has been persuaded transaction; and other relevant records. readily accessible on the RIC’s Web site. by commenters and has concluded that The records of RICs are often The Commission also proposed to providing relief to CPOs of RICs from maintained by third parties, such as exempt such entities from the the requirement to send monthly administrators. Because of this, the requirement under § 4.26(b) to attach financial statements is appropriate, Commission proposed extending the the Account Statements to the provided that the RIC’s current net asset same type of relief currently available to Disclosure Document, again provided value per share is available to investors, ETFs through § 4.23 to RICs. The relief such materials are readily accessible on and provided that the RIC furnishes in § 4.23 allows maintenance of records the RIC’s Web site. The Commission did semi-annual and annual reports to at certain third party sites, such as those not propose to alter the requirement that investors and files periodic reports with of an administrator or custodian. Account Statements be distributed at the SEC as required by the SEC. When Commenters suggested that the least monthly. current net asset value per share is Commission extend the proposed relief Commenters generally appreciated the available to investors, coupled with to include not only RICs but all CPOs proposed relief under § 4.12(c) but more detailed periodic reports as and CTAs, including private pools or requested a broader exemption from the described above, the Commission funds; these commenters claimed such requirements in § 4.22(a)–(b), which believes that the decision not to require an extension would be more consistent require monthly statements to be monthly statements would not reduce with prevailing technologies, current prepared and provided to the transparency available to investors. market practices, and SEC participants.129 Alternatively, others Importantly, a fund investor could requirements.138 Commenters also suggested that the Commission allow calculate his/her position in the fund suggested that the Commission remove RICs to file quarterly statements, rather using the current net asset value per the limitation on which entities are than monthly, as such a requirement is share. permitted to maintain books and more in line with the SEC’s The Commission does not believe that records, because SEC rules permit a requirements under the federal its interest in ensuring that financial wider range of entities to do so.139 securities laws.130 One commenter information is provided to pool The Commission understands the suggested that the Commission permit participants is negatively impacted if current practice for RICs, as well as RICs to satisfy the requirements of such information is made available many other CPOs, to maintain their § 4.22(a)–(b) by posting on its public through the Web site of the RIC or its books and records with a third party Web site all reports to shareholders in designee. This is consistent with § 4.1(c) vendor, or other such record-keeper, to compliance with and as required by SEC of the Commission’s regulations, be part of efficient management RIC Rules.131 Some commenters noted wherein the Commission permits the practices regarding such records.140 that RIC investors have ready access to distribution of information to Such practice allows the CPO to avail participants through electronic itself of the lower cost and increased 127 15 U.S.C. 80a–22; 17 CFR 270.2a–4; 17 CFR means.137 In accordance with the record security of a third party vendor, 270.22c–1(a). permitted use of electronic distribution, as such vendors often specialize in such 128 See 17 CFR 270.30b1–5 (quarterly schedule of portfolio holdings on Form N–Q); 17 CFR services. The Commission 270.30b2–1 (semi-annual and annual reports on 132 NFA Letter; SIFMA AMG Letter. Form N–CSR); 17 CFR 270.30e–1 (semi-annual and 133 Katten Letter; NYCBA Letter. 138 MFA Letter; IAA Letter. annual reports to shareholders). 134 SIFMA AMG Letter; NYCBA Letter; AXA 139 MFA Letter; IAA Letter; Dechert Letter; ICI 129 AXA Letter; SIFMA AMG Letter; ICI Letter; Letter. Letter; SIFMA AMG Letter. ABA Letter. 135 AII Letter. 140 See, 17 CFR 270.31a–3 (person maintaining 130 NFA Letter; ABA Letter. 136 MFA Letter. required records on behalf of a RIC must agree that 131 Katten Letter. 137 17 CFR 4.1(c). records are the property of the RIC).

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acknowledges that its requirement to Some commenters suggested the The Commission has also determined keep such books and records at the main Commission exempt RICs from the to amend § 4.23 to permit all CPOs to business address of a CPO is rooted in requirement to make available a CPO’s use third-party service providers to the timely and certain access of that books and records at the request of an maintain their books and records. The data. However, to the extent that such investor.144 These commenters noted Commission believes that expansion of data is readily accessible to a CPO, the the possibility of investors accessing the relief previously limited to exchange Commission believes that the trading and position information to use traded funds appropriately recognizes requirement that such data be in trading against the pool/fund, leading technological advances in maintained at the main business address to unfair competition and front-running. recordkeeping and the ability to make of a CPO is similarly met so long as Commenters were concerned with the books and records readily available to timely and complete access to that data ledger requirement in § 4.23(a)(4) regulatory agencies. The Commission is available. Further, as suggested by the because they noted that most shares are will continue to require CPOs of RICs to comments, the Commission believes held in omnibus accounts or through file with the NFA (1) a notice providing that the advantages of such intermediaries and that transfer agents information about the third-party recordkeeping practices are applicable typically keep records of investors.145 service provider, and (2) a statement to all CPOs. Accordingly, the These commenters requested from the service provider agreeing to Commission has determined that so clarification that a transfer agent’s maintain the pool’s books and records long as at the time that such CPO maintenance of records and/or a list of consistent with the Commission’s registers with the Commission, or relevant intermediaries would be regulations. This requirement is delegates its recordkeeping obligations, deemed to satisfy the information identical to the notices previously whichever is later, the CPO files a requirements regarding pool required under § 4.12(c)(iii). Therefore, statement with the Commission participants under § 4.23(a)(4). the Commission is adopting final describing the delegated record keeper, The Commission recognizes the amendments to § 4.23 permitting all and maintains timely access to those concerns that, if a participant were to registered CPOs to use third party records in such manner as set forth by inspect such books and records of a service providers to maintain their the Commission, that CPO will be pool, SEC requirements may then books and records. permitted to utilize the services of third- compel the pool to publicly disclose E. Broader Applicability parties with respect to the maintenance such information to avoid prohibitions of books and records. against selective disclosure. Even in the The Commission proposed absence of wide disclosure of such b. Other Recordkeeping Obligations harmonization of compliance positions, which would at a minimum obligations for CPOs of RICs only. The Section 4.23 also requires that a CPO’s require substantial effort to compile and Commission did not propose extending books and records be made available to distribute such information to all fund relief to other CPOs or other SEC- participants for inspection and/or participants at unplanned intervals, registered entities, such as investment copying at the request of the disclosure of transaction level data on a advisers to private funds. However, the participant.141 The Commission did not real time or near real-time basis to even Commission did request comment on propose altering this requirement. The a single participant may make such a whether it should consider applying any SEC does not have a comparable pool vulnerable to front-running or of the harmonization provisions to requirement. Indeed, disclosure of non- market manipulation. Accordingly, to operators of pools that are not RICs. public information to some, but not all, remove these risks, a registered CPO One commenter supported the participants is prohibited where that operates a RIC will not be required Commission’s proposal to amend inconsistent with the antifraud to make its records available for § 4.12(c) to extend relief to RICs similar provisions of the federal securities laws inspection and copying. to the relief granted to ETFs, as well as The Commission recognizes that the and the fund’s or adviser’s fiduciary the Commission’s proposal to extend 142 practice of many RICs to hold account duties (‘‘selective disclosure’’). the same relief to operators of all Additionally, § 4.23(a)(4) requires a shares in an omnibus account, with publicly offered pools, regardless of ledger (or other record) to be kept for such records of participant information whether they are traded on a securities each participant in the pool that shows being kept by a transfer agent or exchange.146 Several commenters the participant’s name, address, and all financial intermediary, such as a broker- requested the Commission extend relief funds received from or distributed to the dealer or , would make the under 4.12(c) to privately offered participant. requirement that the CPO keep custody pools.147 One commenter noted that the of such records both duplicative and investor access provision is inconsistent unduly burdensome on the CPO of a The Commission believes that with SEC regulations, which the RIC. Because a subsidiary ledger of publicly offered pools that are not commenter claimed are sufficient to largely the form and substance required traded on an exchange should be provide investors with information.143 by the Commission is kept by those afforded the same relief as ETFs. Both transfer agents and financial are subject to regulation under the 141 Certain confidential or proprietary intermediaries, the Commission agrees Securities Act, and therefore, required information, including participants’ personal that in such instances, the maintenance to comply with certain disclosure and information and subscription information as well as reporting obligations. Accordingly, the the records of the CPO’s personal investments, are of these records by a transfer agent or not required to be made available for inspection by financial intermediary, in such form Commission adopts as final the pool participants. that complies with that as set forth by proposed extension of relief under 142 See SEC Regulation FD (17 CFR 243.100–103) the Commission, shall satisfy the § 4.12(c) to all publicly offered pools, (with respect to closed-end RICs); Items 9(d) and requirement of § 4.23(a)(4). regardless of whether such pools are 16(f) of SEC form N–1A (open-end RICs required to traded on an exchange. disclose policies and procedures with respect to disclosure of portfolio securities and ongoing 144 Katten Letter; ABA Letter; ICI Letter; AII arrangements to make available information about Letter. 146 NFA Letter. portfolio securities. 145 Dechert Letter; Katten Letter; SIFMA AMG 147 MFA Letter; IAA Letter; SIFMA AMG Letter; 143 ABA Letter. Letter. Campbell Letter; Steben Letter.

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Unlike publicly offered pools, ownership interests in commodity pools implements Commission forms CPO– privately offered pools avail themselves with the requirements imposed on the PQR and CTA–PR, 60 days following of an exemption from registration under offerings of interests in other types of the effective date of this rulemaking.153 the Securities Act.148 Ownership funds. Therefore, the Commission is Accordingly, initial reporting on forms interests in privately offered pools are rescinding the signed acknowledgement CPO–PQR for CPOs of RICs will begin not subject to the same types of requirement under § 4.21(b) for all October 21, 2013.154 Section 4.21 will regulatory obligations under the CPOs. become effective upon publication in securities laws as publicly offered pools. One commenter requested that the the Federal Register. With respect to the As a result, CPOs of privately offered Commission amend § 4.7(b) and amendments to §§ 4.7(b)(4), 4.23, 4.26, pools are not subject to the prospect of § 4.13(a)(3) 151 in response to the and 4.36 that are applicable to all being required to comply with two Jumpstart Our Business Startups Act registered CPOs, these amendments will different compliance regimes. Therefore, (‘‘JOBS Act’’), which eliminates the become effective 30 days after the Commission will not extend the full prohibition on general solicitation in publication in the Federal Register and scope of the exemptions provided under connection with private funds.152 The CPOs may comply upon the effective § 4.12(c) to all CPOs. However, the JOBS Act amends certain sections of the date. Commission has determined to Securities Act, but does not change III. Related Matters liberalize the third party recordkeeping similar provisions in the CEA or under and document distribution requirements part 4 of the Commission’s regulations. A. Paperwork Reduction Act under part 4 of the Commission’s The commenter contended that this The Paperwork Reduction Act regulations, as discussed supra, for all disparity will create a situation in (‘‘PRA’’) imposes certain requirements CPOs. which private funds may market to the on Federal agencies in connection with With respect to the specific public but private pools may not. their conducting or sponsoring any compliance obligations under part 4, The Commission recognizes that there collection of information as defined by one commenter requested that the may be some disparity between the the PRA.155 An agency may not conduct Commission extend the relief from the treatment of privately offered funds or sponsor, and a person is not required Disclosure Document delivery and under the securities laws and the to respond to, a collection of acknowledgment requirements in § 4.21 Commission’s regulations; however, this information unless it displays a to any CPO of a private pool/fund, so issue was not included in the Proposal currently valid control number from the long as the pool/fund has an investment and was not subject to notice and Office of Management and Budget advisor registered with the SEC and is comment. Therefore, the Commission (‘‘OMB’’). This final release affects OMB either registered under § 4.7 or would does not believe that this final rule is Control Numbers 3038–0023 and 3038– have been exempt under rescinded the appropriate mechanism for 149 0005 to reflect the obligations associated § 4.13(a)(4). The commenter noted addressing the difference between the with the registration of new CPOs that that because the participants in these two regimes. The Commission has were previously excluded from private pools would be sophisticated directed Commission staff to evaluate registration under § 4.5. Specifically, investors, the Commission should not the issue and make recommendations to this final release is amending Collection deny these pools the same relief granted the Commission for future action. 3038–0005 to accommodate the to CPOs of RICs, whose investors are modified compliance obligations under 150 F. Effective Dates and Implementation less sophisticated retail investors. part 4 of the Commission’s regulations. The Commission has determined to The harmonized compliance rescind the signed acknowledgement obligations for CPOs of RICs under a. Estimated Number of Affected requirement under § 4.21(b) for all § 4.12, except for § 4.12(c)(3)(i), will Entities registered CPOs. Through its expansion become effective upon publication in In the Proposal, the Commission of § 4.12(c) to exempt all publicly the Federal Register. derived the number of estimated entities offered funds, the Commission has Section 4.12(c)(3)(i) will become affected and the number of burden recognized that publicly offered pools effective 30 days after publication in the hours associated with this proposal that are not exchange traded are Federal Register. Compliance will be through the use of statistical analysis. similarly situated with respect to the required with the conditions adopted According to the single and limited requirements under § 4.21 as ETFs. The herein in § 4.12(c)(3)(i) for open-end source of data available to the Commission believes that because RICs beginning when a RIC files with Commission, in 2010, there were 669 participants in privately offered pools the SEC an initial registration statement sponsors of 9,719 registered investment are not retail participants but are on form N–1A or, for an existing RIC, its companies, including mutual funds, sophisticated persons, the concerns first post-effective amendment that is an closed end funds, exchange traded underlying the signed-acknowledgment annual update to an effective funds, and unit investment trusts.156 In requirement are not present. Moreover, registration statement on form N–1A. the comment letter submitted by the the elimination of this requirement For CPOs of closed-end RICs, Investment Company Institute (‘‘ICI’’) in would align the Commission’s compliance will be required when the requirements regarding the offering of closed-end RIC files an initial 153 See 2012 Final Rule, supra note 6, 77 FR registration statement with the SEC, or, 11252 (Feb. 24, 2012); correction 77 FR 17328 148 See, e.g., 17 CFR 230.501 (‘‘Reg. D); 15 U.S.C. for existing closed-end RICs, when the (March 26, 2012). 77d (‘‘Section 4(2)’’). 154 The instructions for form CPO–PQR specify 149 Commission Regulation 4.7 and former closed-end RIC is required to update its different dates by which CPOs must file the form, Regulation 4.13(a)(4) provide for an exemption of registration statement. Consistent with depending on the amount of assets under certain Part 4 requirements, or an exemption from the Commission’s statements in the management by the pool operator. 77 FR at 11288. registration as a CPO, respectively, for, among other 2012 Final Rule, CPOs of RICs must CTAs must file form CTA–PR annually. 77 FR at things, operating a pool of which all the 11339. participants therein are qualified eligible persons. begin to comply with § 4.27, which 155 See 44 U.S.C. 3501 et seq. 17 CFR 4.7 and 17 CFR 4.13(a)(4). See 2012 Final 156 See 2011 Investment Company Fact Book, Rule, supra note 6, 77 FR 11252 (Feb. 24, 2012); 151 See supra footnote 149. Chap. 1 and Data Tables, Investment Company correction 77 FR 17328 (March 26, 2012). 152 Comment letter from Managed Futures Institute (2011), available at http:// 150 SIFMA AMG Letter. Association (July 17, 2012) (MFA II Letter). www.icifactbook.org/.

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response to the Commission’s proposed 551 funds that would trigger regulations that concern registration amendments to § 4.5, the ICI stated that registration.159 Therefore, according to requirements. The Commission it surveyed its membership and 13 the ICI’s data, 13 percent of the amended existing Collection 3038–0023 sponsors responded representing 2,111 surveyed funds would trigger to reflect the obligations associated with registered investment companies. Of registration of their operators.160 the registration of new entrants, i.e., those 2,111 registered investment Applying this percentage to the total CPOs that were previously exempt from companies, the 13 sponsors estimated universe of RICs less the 4188 surveyed registration under § 4.5 that had not that 485 would trigger registration and RICs, results in an estimated 5552 non- previously been required to register.166 compliance obligations under § 4.5 as surveyed RICs and an estimated total of Because the registration requirements amended. This constituted 722 non-surveyed RICs with operators are in all respects the same as for approximately 23% of the reported required to register.161 The total number current registrants, the collection was registered investment companies. of surveyed and non-surveyed RICs with amended only insofar as it concerns the The Commission then deducted the operators required to register is estimated increase in the number of 2,111 registered investment companies approximately 1,266.162 respondents and the corresponding discussed in the ICI comment letter As stated above, the ICI also noted estimated annual burden. These from the 9,719 entities comprising the that 33 advisers would be required to burdens were associated with the 2012 universe of registered investment register as CPOs due to the activities of Final Rule amending § 4.5, which was companies, and deducted the 13 551 RICs.163 According to the 2012 ICI published in the Federal Register on sponsors surveyed by the ICI from the Fact Book, there were 713 advisers to February 24, 2012. Responses to this universe of 669 fund sponsors to arrive RICs in 2011.164 The Commission collection of information are mandatory. at a balance of 656 fund sponsors deducted the 42 surveyed advisers from The total burden associated with operating 7,608 registered investment the total universe of 713 advisers to find registration including the registration of companies. This resulted, for the a total of 671 non-surveyed advisers. operators of RICs was as follows: calculated remainder, in an average of When the Commission compared the Estimated number of respondents: 11.6 registered investment companies number of non-surveyed RICs with the 75,425. being offered per sponsor. number of non-surveyed advisers, the Annual responses by each The Commission then calculated 23% Commission determined that each respondent: 75,932. of the 7,608 registered investment adviser advises an average of 8 RICs. Estimated average hours per response: companies not covered by the ICI The Commission then applied the 0.09. survey, resulting in 1,750 additional average of 8 RICs per adviser to the 722 Annual reporting burden: 6,833.9. registered investment companies that estimated number of non-surveyed RICs In the Proposal, the Commission the Commission would expect to trigger required to register, and obtained an published a proposed amendment to registration under amended § 4.5. The estimate of 90 non-surveyed advisers Collection 3038–0023 that inadvertently Commission then divided this number being required to register. The reflected an additional amendment to by the previously calculated average Commission then added the 33 the collection arising from the number of registered investment surveyed advisers to its estimate, and registration of additional CPOs that companies operated per sponsor to determined that an estimated 123 were previously excluded from the which it added the 13 sponsors from the advisers may be required to register. definition of CPO under § 4.5.167 As ICI survey to reach 164 sponsors Because the Commission cannot state stated above, the Commission amended expected to be required to register under with certainty that only 123 entities existing Collection 3038–0023 in the amended § 4.5. Because the Commission would be required to register, the 2012 Final Rule to reflect the obligations could not state with certainty that only Commission believes that the number of associated with the registration of new 164 entities would be required to sponsors or advisors required to register CPOs that were previously excluded register the Commission indicated that to be somewhere between 123 and 713 from registration under § 4.5. Thus, the number of sponsors or advisors entities, the midpoint of which is 418 these entities were already included in required to register were somewhere entities. the Commission’s final amendment to between 164 and 669 entities. For PRA b. OMB Control Number 3038–0023 Collection 3038–0023 associated with purposes, the Commission concluded the 2012 Final Rule, and therefore, the that it was appropriate to use the On February 24, 2012, the additional amendments to Collection midpoint between the outer bounds of Commission finalized amendments to 3038–0023 in the Proposal resulted in the range, which was 416 entities. Collection 3038–0023, titled ‘‘Part 3— those entities being erroneously double Pursuant to the request for comments Registration,’’ to allow for an increase in counted. Accordingly, the burden hours on the Proposal, the Investment response hours for the rulemaking previously estimated for Collection Company Institute (‘‘ICI’’) submitted a resulting from the amendments to § 4.5 3038–0023 in the 2012 Final Rule that comment letter in response which that the Commission recently amended § 4.5 and the estimates for this 165 provided additional and differing adopted. Collection 3038–0023 collection remain unchanged from the information that it obtained through a affects part 3 of the Commission’s 2012 Final Rule. further survey of its membership.157 In its letter, the ICI stated that in its return, 159 Id. c. OMB Control Number 3038–0005 160 Percentage obtained by dividing 551 by 4,188 Also, on February 24, 2012, the 2012 42 advisers reported operating 4,188 surveyed RICs. funds, which constituted 43 percent of 161 Total of non-surveyed RICs subject to Final Rule amended Collection 3038– the universe of RICs.158 Therefore, the registration obtained by multiplying 5552 non- 0005 to allow for an increase in total universe of RICs can be calculated surveyed RICs by .13. to equal 9,740. 162 Total obtained by multiplying 9740 by .13. 166 See 2012 Final Rule, supra note 6, 77 FR at The ICI further stated that of these 42 163 ICI Letter. 11273. 164 advisers, 33 stated that they operated See 2012 Investment Company Fact Book at 167 See Proposal, supra note 23, 77 FR at 1349. 13, available at http://www.icifactbook.org/2012_ The Proposal stated that there were 75,841 factbook.pdf. estimated number of respondents, 76,350 annual 157 ICI Letter. 165 See 2012 Final Rule, supra note 6, 77 FR at responses by each respondent and 6,871.6 annual 158 Id. 11272. reporting burden.

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response hours for the rulemaking Annual responses by each information contained in a government resulting from the amendments to respondent: 5. system of records according to the § 4.5.168 Collection 3038–0005 affects Estimated average hours per response: Privacy Act of 1974.176 part 4 of the Commission’s regulations 2. that concern compliance obligations of Annual reporting burden: 4160. d. Changes Resulting From CPOs and CTAs, and the circumstances As further discussed below, the Harmonization and Additional under which they may be exempted or Commission in this final release is Information Provided by CPOs and excluded from registration. The amending Collection 3038–0005 to CTAs estimated average time spent per accommodate the modified compliance 1. OMB Control Number 3038–0023 response was not altered in the 2012 obligations under part 4 of the Final Rule; however, adjustments were Commission’s regulations resulting from This rule does not impact the burden made to the collection to account for the these revisions. The title for this hours previously estimated for new burden expected under the collection is ‘‘Part 4—Commodity Pool Collection 3038–0023 in the 2012 Final rulemaking. The total burden associated Operators and Commodity Trading Rule that amended § 4.5 and the with Collection 3038–0005, in the Advisors’’ (OMB Control number 3038– estimates for this collection have not aggregate, was as follows: 0005). Responses to this collection of been changed by this rule. Estimated number of respondents: information will be mandatory. The new 43,168. total burden associated with Collection 2. OMB Control Number 3038–0005 Annual responses for all respondents: 3038–0005, in the aggregate, including The Commission is amending 61,868. the burden imposed by regulations that Collection 3038–0005 to increase the Estimated average hours per response: are not being amended by this estimated total number of respondents, 8.77. rulemaking, is as follows: total annual responses for all Annual reporting burden: 257,635.8. Estimated number of respondents: In the Proposal, the Commission 49,008. respondents, and annual reporting proposed changes to part 4 that were Annual responses for all respondents: burden from the estimates that appeared designed to better harmonize the 69,382. in the Proposal. These amendments are Commission’s compliance obligations Estimated average hours per response: in response to comments that the for CPOs and minimize the burden 3.99.172 Commission received regarding the imposed on those dually-regulated by Annual reporting burden: burdens imposed by the Proposal and the Commission and the SEC while still 276,540.3.173 also reflect the differences between the enabling the Commission to fulfill its The new total burden associated with Proposal and the final rule. Thus, the regulatory goals.169 The Proposal was Collection 3038–0005, as a result of the new total burden in the 2012 Final Rule designed to, where possible, minimize amendments adopted in this associated with Collection 3038–0005, the regulatory burden on these entities rulemaking, is as follows: listed in the aggregate above, has with respect to disclosure, annual and Estimated number of respondents: increased to account for the burdens periodic reporting to participants and 5,894. associated with the various information the Commission, recordkeeping Annual responses for all respondents: collections in this final rule, as requirements, and ensure that 7,694. discussed below. requirements among the SEC and CFTC Estimated average hours per response: did not conflict such that compliance 2.66.174 i. Amendments to Timeframe for with one regime would cause a violation Annual reporting burden: 20,464.5 Updating Disclosure Documents of another. With respect to the PRA, the The Commission will protect proprietary information according to the In this release, the Commission is Proposal increased the number of finalizing the collection of information estimated entities that would be subject Freedom of Information Act (‘‘FOIA’’) and 17 CFR part 145, ‘‘Commission regarding the frequency with which to the compliance obligations of CPOs CPOs and CTAs must update their 170 Records and Information.’’ In addition, and CTAs, which are part of Disclosure Documents under §§ 4.26 171 section 8(a)(1) of the CEA strictly Collection 3038–0005. The Proposal and 4.36, respectively. While the total specifically added the following burden prohibits the Commission, unless specifically authorized by the CEA, from annual reporting burden has increased with respect to compliance obligations to account for the total annual reporting other than Form CPO–PQR: making public ‘‘data and information that would separately disclose the by CPOs for the various information Estimated number of respondents: collections in this final release, the 416. business transactions or market position of any person and trade secrets or names Commission believes that the amendments to §§ 4.26 and 4.36 will 168 See 2012 Final Rule, supra note 6, 77 FR at of customers.’’ 175 The Commission is 11272. also required to protect certain result in a reduction of the burden on 177 169 The Commission issued its proposal under the CPOs and CTAs. The Commission authority of §§ 4m, 4n, and 8a(5) of the CEA. 7 172 The Commission rounded the average hours estimates the burden associated with the U.S.C. 6m, 6n, and 12a(5). per response to the second decimal place for ease 170 See Proposal, supra note 23, 77 FR at 11349, of presentation. 176 See 5 U.S.C. 552a. finding that 416 entities would be required to 173 This total estimate for Collection 3038–0005, 177 register under amended § 4.5. To facilitate compliance with part 4 in the aggregate, has been increased from the requirements for CPOs of RICs, the Commission 171 See Proposal, supra note 23, 77 FR at 11349, Proposal to accurately reflect the average under amended § 4.26 and § 4.36 to extend the period that which, to account for the increased number of Collection 3038–0005. While the total annual CPOs and CTAs may use Disclosure Documents entities, proposed that the total burden associated reporting burden has increased, the total annual from nine months to twelve months from the date with Collection 3038–0005, in the aggregate, reporting burden reflects the decreased burden of the document. Section 4.26(a)(2) in this final including the burden imposed by regulations that associated with the preparation of Disclosure release now provides that no commodity pool were not proposed to be amended by that Documents by CPOs under the amendments to operator may use a Disclosure Document or profile rulemaking, was expected to be, as follows: §§ 4.26 and 4.36. document dated more than twelve months prior to Estimated number of respondents: 44,142. 174 The Commission rounded the average hours the date of its use. Section 4.36(b) provides that no Annual responses by each respondent: 62,121. per response to the second decimal place for ease commodity trading advisor may use a Disclosure Estimated average hours per response: 4.22. of presentation. Document dated more than twelve months prior to Annual reporting burden: 262,347.8. 175 See 7 U.S.C. 12. the date of its use.

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amendments to §§ 4.26 and 4.36 to be as requirements for substantially similar Estimated number of respondents: follows: accounts and funds with respect to 380 368. Section 4.26: pools. The Commission is not aware of Annual responses by each Estimated number of respondents: any source of data to assist it in respondent: 1. 160. estimating the number of operators of Estimated average hours per response: Annual responses by each RICs with substantially similar pools or 15. respondent: 1.8. accounts or to assist in estimating the Total Annual reporting burden hours: Estimated average hours per response: number of those substantially similar 5,520. 3.25 pools or accounts that do not iii. Notice To Claim Substituted Total Annual reporting burden hours: independently have regulatory Compliance 936. obligations requiring the preparation of Section 4.36: past performance data. To be This final rule requires a notice to be Estimated number of respondents: conservative, therefore, the Commission filed for operators of RICs to claim relief 450. will assume that all operators of RICs under revised § 4.12(d) to enable the Annual responses by each with less than three years operating Commission to know which entities are 182 respondent: 1. history will have multiple pools or claiming this relief. The notice is Estimated average hours per response: accounts that are substantially similar in effective upon submission and must 1.85. all material respects and that such only be filed once per pool. The Total Annual reporting burden hours: substantially similar pools or accounts Commission estimates the burden 832.5. do not have separate compliance associated with this filing to be as follows: ii. Past Performance for Pools With Less obligations requiring preparation of past performance information. Estimated number of respondents: Than Three Years Performance 418. The Commission is adopting a rule in The ICI, in its comment letter, Annual responses by each § 4.12(c) of this release that would estimated that costs associated with respondent: 3. require operators of RICs with less than prior performance disclosure required Estimated average hours per response: three years performance history to under the Proposal for funds with less 2. disclose the performance of all pools than a three year operating history Total Annual reporting burden hours: and accounts that are managed by the would amount to 34 hours per fund 2,508. CPO and that have investment initially, and 25.5 hours per fund each The Commission does not believe that objectives, policies, and strategies year in ongoing compliance the requirement that operators of RICs substantially similar to those of the requirements.180 The ICI’s estimates are discuss the risks associated with the offered pool.178 Not all RICs will fall based on the requirement in the activities of the operated into this category and therefore, not all Proposal to include past performance pools as adopted by this final rule RICs will be subject to this disclosure information for all other funds operated imposes a burden beyond that already requirement. by the sponsor of the fund with less imposed by the Securities and Exchange Based on information provided by the than a three year operating history. As Commission through SEC forms N–1A ICI in its comment letter, of the 551 RICs noted supra, the Commission has and N–2.183 in the survey that would trigger altered this provision to require iv. Filing Annual Financial Statements registration of their advisor, 159 of those disclosure of only those funds and by CPOs of RICs RICs had less than three years operating accounts that are substantially similar in history.179 This constitutes all material respects to the fund with The final rule requires that operators approximately 30 percent of the RICs in less than a three year operating history. of RICs file annual financial statements the survey whose CPOs would not be In so doing, the Commission believes with the NFA, pursuant to the terms of excluded under § 4.5. The RICs with that it has significantly reduced the § 4.22(c),184 which is applicable to all less than three years operating history requirements regarding past CPOs. It permits operators of RICs to file that would require registration in the ICI performance disclosure. As such, the the same financial statements that it survey were operated by 29 of the 33 Commission believes it can reasonably prepares for its compliance obligations advisers that expected to register, which reduce the number of hours required with the SEC. The Commission constitutes 88 percent of the surveyed both initially and in ongoing anticipates that the additional sponsors expecting to register. Applying compliance. The Commission requirement imposed by the rule in these percentages to the Commission’s anticipates initial and ongoing cost of § 4.22(c) necessitates only addressing estimated number of 418 sponsors approximately 15 hours per fund.181 any potential formatting changes—i.e. required to register, the Commission The Commission believes that 15 hours making sure the document is in PDF expects approximately 368 pool is a reasonable estimate for the form as required by NFA—and operators to be subject to the disclosure preparation of past performance uploading the document via NFA’s Easy information for a substantially similar File system (to which advisers should 178 Section 4.12(c)(3)(i) states that ‘‘The pool or account. The total burden already have access by virtue of their commodity pool operator of a pool whose units of associated with the past performance registration). Thus, the Commission participation meet the criteria of paragraph (c)(1)(ii) assessment and disclosure is: anticipates at most 2 hours per fund per of this section may claim the following relief: (i) The pool operator of an offered pool will be exempt from the requirements of §§ 4.21, 4.24, 4.25, and 180 ICI Letter. 182 Section4.12(d)(1)(iv) requires pool operators to 4.26; Provided, that (A) The pool operator of an 181 The burden estimate assumes that all RICs specify the relief sought under paragraph (b)(2), offered pool with less than a three-year operating with less than three years performance are newly (c)(2), or (c)(3) of this section, as the case may be. history discloses the performance of all accounts formed and have no performance history, whereas 183 See Items, 4, 9, and 16(b) of Form N–1A; and and pools that are managed by the same pool some of these RICs likely have anywhere from no Item 8 and 17 of Form N–2. operator and that have investment objectives, past performance to just less than three full years. 184 Section 4.22(c) has not been amended by this policies, and strategies substantially similar to those Therefore, the Commission believes that this rule. The information collection is being amended of the offered pool; . . .’’ calculation overestimates the ongoing burden to only to reflect the increase in the numbers of new 179 ICI Letter. these CPOs. CPOs registering.

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sponsor. With respect to the filing of Annual responses by each create a significant economic impact on annual financial statements by operators respondent: 1. a substantial number of small entities. of RICs with the NFA, the Commission Estimated average hours per response: CTAs: The Commission has estimates the burden to be as follows: 2. previously decided to evaluate, within Estimated number of respondents: Total Annual reporting burden: 7,004. the context of a particular rule proposal, 418. whether all or some CTAs should be Annual responses by each vi. Compliance With Form CPO–PQR by respondent: 3. CPOs of RICs considered to be small entities, and if Estimated average hours per response: CPOs of RICs were not required to so, to analyze the economic impact on 192 2. comply with its filing obligations under them of any such rule. The sole Total Annual reporting burden hours: § 4.27 or file form CPO–PQR until the aspect of the final rule that affects CTAs 2,508. finalization of this rulemaking. The that are registered with the Commission v. Notice of Use of Third-Party Record reporting obligations for CPOs of RICs is the timeframe that permits Disclosure Keepers with respect to form CPO–PQR under Documents to be used for 12 months The final rule adopts amendments to the PRA and the costs and benefits were rather than 9 months, thereby reducing §§ 4.7(b)(4) and 4.23 to permit the use addressed in the 2012 Final Rule,186 and the frequency with which updates must of third-party recordkeepers by any CPO restated in the Proposal only for be prepared. While the Commission that files a notice with NFA. The informational purposes.187 To the extent considers the reduced frequency with estimated number of respondents is that this rule does not impact the which these CTAs must prepare updates derived from the estimates finalized as burden hours previously estimated in to their Disclosure Documents as part of the 2012 Final Rule adopting the 2012 Final Rule for Form CPO–PQR, reducing the overall burden on affected amendments to § 4.5 and § 4.13, and the estimates for Collection 3038–0005 entities, it is of the view of the reflects the additional registrants associated with form CPO–PQR have Commission that the reduction in expected due to the changes in those not been changed by this rule. updates mitigates the rule’s economic rules. Because the Commission cannot B. Regulatory Flexibility Act impact. Over the course of three be sure how many CPOs will use third- calendar years, the change from a 9 party service providers, the Commission The Regulatory Flexibility Act month update period to a 12 month estimates that all CPOs will take (RFA) 188 requires that agencies, in update period eliminates 1 filing per advantage of the amendments to the proposing rules, consider the impact of record-keeping requirements under those rules on small entities. The CTA. This results in a change from 1.33 § 4.23 and § 4.7.185 With respect to the Commission has previously established filings per year to 1 filing per year. In filing of the notice under revised § 4.23 certain definitions of ‘‘small entities’’ to addition, because the eliminated filing to permit the use of third-party be used by the Commission in would be an update of a document that recordkeepers, the Commission evaluating the impact of its rules on was already prepared and reviewed by estimates the burden to be as follows: such entities in accordance with the NFA, the Commission does not believe For CPOs of RICs subject to § 4.23: RFA.189 that the eliminated filing would result Estimated number of respondents: CPOs: The Commission has in a significant economic impact. As 418. previously determined that registered indicated above, it would reduce any Annual responses by each CPOs are not small entities for the impact that the rule would otherwise respondent: 1. purpose of the RFA.190 With respect to have. Moreover, the amended time Estimated average hours per response: CPOs exempt from registration, the period for updating Disclosure 2. Commission has determined that a CPO Documents for CTAs also aligns this Total Annual reporting burden: 836. is a small entity if it meets the criteria requirement with other regulatory For all other CPOs subject to § 4.23: for exemption from registration under obligations that registered CTAs must Estimated number of respondents: current § 4.13(a)(2).191 Based on the comply with, including the filing of 160. requisite level of sophistication needed form CTA–PR pursuant to § 4.27 of the Annual responses by each to comply with the SEC’s regulatory Commission’s regulations.193 The respondent: 1. regime for registered investment Commission believes that this will Estimated average hours per response: companies, and the fact that registered 2. enable registered CTAs to avail investment companies are generally themselves of operational efficiencies in Total Annual reporting burden: 320. intended to serve as retail investment With respect to the filing of the notice satisfying its regulatory obligations as vehicles and do not qualify for the information required under form under revised § 4.7(b)(4) to permit the exemption under § 4.13(a)(2), the CTA–PR is relevant to the preparation use of third-party recordkeepers, the Commission believes that registered or updating of Disclosure Documents. Commission estimates the burden to be investment companies are generally not as follows: small entities for purposes of the RFA Therefore, the Commission has Estimated number of respondents: analysis. Moreover, this final rule will determined that the final rule will not 3,502. reduce the burden of complying with create a significant economic impact on part 4 for CPOs of registered investment a substantial number of small entities. 185 The Commission has previously estimated that companies. The Commission has Accordingly, the Chairman, on behalf of each CPO that subject to § 4.23 had a burden of the Commission hereby certifies approximately 50 hours associated with determined that the final rule will not recordkeeping obligations and that each CPO pursuant to 5 U.S.C. 605(b) that the final subject to § 4.7(b)(4) had a burden of approximately 186 See 2012 Final Rule, supra note 6, 77 FR at rule will not have a significant impact 40 hours associated with recordkeeping obligations. 11273. on a substantial number of small Because the Commission is estimating that all 187 See Proposal, supra note 23, 77 FR at 11349. registered CPOs will use third-party service entities. 188 providers for recordkeeping purposes, the See 5 U.S.C. 601, et seq. Commission expects that burdens associated with 189 47 FR 18618 (Apr. 30, 1982). §§ 4.7(b)(4) and 4.23 will be reduced, although the 190 See 47 FR 18618, 18619 (Apr. 30, 1982). 192 See 47 FR at 18620. reduction cannot be quantified at this time. 191 See 47 FR at 18619–20. 193 17 CFR 4.27.

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C. Cost Benefit Analysis Commission amended § 4.5 to modify was designed to address potentially the exclusion from the definition of conflicting or duplicative compliance a. Consideration of Costs and Benefits ‘‘commodity pool operator’’ for those obligations administered by the Section 15(a) of the CEA requires the entities that are investment companies Commission and the SEC regarding Commission to consider the costs and registered as such with the SEC disclosure, reporting and recordkeeping benefits of its actions before pursuant to the ’40 Act.198 This by CPOs of RICs.202 promulgating a regulation under the Act modification amended the terms of the As set forth in the Proposal, the or issuing certain orders.194 Section exclusion available to CPOs of RICs to harmonization rulemaking sought to 15(a) further specifies that the costs and include only those CPOs of RICs that address a number of areas identified by benefits shall be evaluated in light of the commit no more than a de minimis commenters, including: the timing of following five broad areas of market and portion of their assets to the trading of the delivery of disclosure documents to public concern: (1) Protection of market commodity interests that do not fall prospective participants; the signed participants and the public; (2) within the definition of bona fide acknowledgement requirement for efficiency, competitiveness and hedging and who do not market receipt of disclosure documents; the financial integrity of futures markets; (3) themselves as a commodity pool or cycle for updating disclosure price discovery; (4) sound risk other commodity investment.199 documents; the timing of practices; and (5) other Pursuant to this amendment, any such reporting to participants; the public interest considerations.195 CPO of a RIC that exceeds this level will requirement that a CPO maintain its Generally, the Commission believes no longer be excluded from the books and records on site; the required that, by avoiding the imposition of definition of CPO. Accordingly, except disclosure of fees; the required potentially duplicative, inconsistent, or for those CPOs of RICs who commit no disclosure of past performance; the conflicting regulatory requirements on more than a de minimis portion of their inclusion of mandatory certification CPOs of RICs subject to federal assets to the trading of commodity language; and the SEC-permitted use of securities laws and SEC rules, the final interests that do not fall within the a summary prospectus for open-ended harmonization rule should generate definition of bona fide hedging and who registered investment companies. important benefits while mitigating the do not market themselves as a In the Proposal, the Commission costs on market participants. commodity pool or other commodity considered the costs and benefits of In the following discussion, the investment, an operator of a RIC that harmonizing the Commissions’ regimes Commission summarizes the key meets the definition of ‘‘commodity and requested comment on its aspects of the final rule, and considers pool operator’’ under § 4.10(d) of the considerations of costs and benefits, the benefits and costs, taking account of Commission’s regulations and § 1a(11) including a description of any cost or public comments received in response of the CEA must register as such with benefit the Commission had not to the Proposal and the February Final the Commission.200 considered. Rule regarding harmonizing the In promulgating the revisions to § 4.5, After consideration of the comments compliance regime of the Commission the Commission received numerous received and further deliberation, the with that of the SEC. The Commission comments that operators of RICs that Commission is adopting rules that then evaluates the final rule in light of also would be required to register as effectively implement a substituted the aforementioned § 15(a) public CPOs would be subject to duplicative, compliance approach for dually interest considerations.196 inconsistent, and possibly conflicting registered CPOs of RICs, whereby such disclosure and reporting obligations. CPOs, largely through compliance with 1. Background The Commission determined, after obligations imposed by the SEC, will be In February 2012, the Commission consideration of the comments received, deemed compliant with the adopted modifications to the exclusions that further consideration was Commission’s regulatory regime. This is from the definition of CPO that are warranted concerning whether and to consistent with the Commission’s delineated in § 4.5.197 Specifically, the what extent CPOs of RICs ought to be conclusion, based on the information subject to various part 4 requirements, currently available, that substituted 194 7 U.S.C. 19(a). and in the 2012 Final Rule suspended compliance is appropriate because it 195 7 U.S.C. 19(a)(2). the obligations of CPOs of RICs with believes that the regime administered by 196 The discussion of costs and benefits in this respect to most of the requirements of the SEC under SEC RIC Rules, with section should be read in conjunction with the 201 discussion of the effects of the rule and the choices part 4 until further rulemaking. minor additional disclosure, should made by the Commission in the remainder of this Therefore, concurrent with the 2012 provide market participants with preamble, all of which entered into the Final Rule that amended § 4.5, the meaningful disclosure as required under Commission’s consideration of costs and benefits in Commission issued the Proposal which part 4, enable the Commission to connection with its decision to promulgate this rule. discharge its regulatory oversight 197 17 CFR 4.5. See 2012 Final Rule, supra note percent of the liquidation value of the pool’s function with respect to the derivatives 6, 77 FR 11252 (Feb. 24, 2012); correction 77 FR portfolio. markets, and ensure that CPOs of RICs 17328 (March 26, 2012). Prior to this Amendment, 198 15 U.S.C. 80a–1, et seq. maintain appropriate records regarding 199 all RICs, and the principals and employees thereof, 17 CFR 1.3(yy). their operations.203 were excluded from the definition of ‘‘commodity 200 Pursuant to the terms of § 4.14(a)(4), CPOs are pool operator,’’ by virtue of the RICs registration not required to register as CTAs if the CPOs’ under the Investment Company Act of 1940. The commodity trading advice is directed solely to, and 202 See, Proposal, supra note 23. 2012 amendment to § 4.5 maintained this exclusion for the sole use of, the pool or pools for which they 203 As discussed further below, the Commission for those RICs that engage in a de minimis amount are registered as CPOs. 17 CFR 4.14(a)(4). has determined, in light of public comments, to of non-bona fide hedging commodity interest 201 See 2012 Final Rule, supra note 6, 77 FR at modify certain elements of the Proposal. For transactions. See id. Specifically, the amendment to 11252, 11255. The Commission exercised its example, the Commission is adopting a substituted § 4.5 retained this exclusion for RICs whose non- authority under § 4.12(a), which provides that the compliance regime with respect to providing bona fide hedging commodity interest transactions Commission may exempt any person or class of disclosures to prospective participants, whereby, require aggregate initial margin and premiums that persons from any or all of part 4 requirements if the with minor modification, the CPO of a RIC can rely do not exceed five percent of the liquidation value Commission finds that the exemption is not upon the disclosures made pursuant to the SEC RIC of the qualifying pool’s portfolio, or whose non- contrary to the public interest or the purposes of the Rules as satisfying its obligations under the bona fide hedging commodity interest transactions’ provision from which the exemption is sought. 17 Commission’s regulations. Additionally, CPOs of aggregate net notional value does not exceed 100 CFR 4.12(a). Continued

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2. Summary of the Final Rules to use third-party service providers to and status of the RICs that use As discussed in greater detail in this manage their recordkeeping obligations, derivatives markets in a significant way. section, the Commission believes that provided that each CPO electing to do NFA will also benefit from the the rules finalized herein enable the so notifies the Commission through information submitted by CPOs of RICs Commission to discharge its regulatory NFA as required under amended as part of their annual financial oversight function with respect to the §§ 4.23(c) and 4.7(b)(4). The statements. This information will assist commodity interest markets and ensure Commission has also determined to NFA in allocating its examinations that CPOs of RICs maintain appropriate rescind the signed acknowledgement resources more effectively through the records regarding their operations in a requirement in § 4.21(b). Finally, the scheduling of examinations based upon manner that avoids imposing Commission has amended §§ 4.26(a)(2) risk analysis of the annual financial unnecessary costs on such entities. and 4.36(b) to allow the use of data. The final rules represent several Disclosure Documents for a twelve- The Commission also believes that significant changes from the Proposal. month cycle, rather than the current requiring CPOs of RICs to comply either The Commission is allowing CPOs of nine-month cycle, for both CPOs and with the full panoply of provisions in RICs to elect to comply with the CTAs. part 4 of the Commission’s regulations majority of the provisions under §§ 4.21, In the following sections, the or the substituted compliance regime 4.22(a) and (b), 4.23, 4.24, 4.25 and 4.26 Commission considers the benefits and adopted in this release will provide the through a system of substituted costs of the final rules, as well as the Commission with additional compliance. That is, subject to certain comments received regarding the costs information that it needs to monitor conditions as delineated in § 4.12(c)–(d), and benefits associated with the participants in markets subject to its a CPO of a RIC may be deemed Proposal, and evaluates the final rules oversight and enforce both the CEA and compliant with those enumerated in light of the five factors enumerated in the Commission’s regulations. This 204 portions of the CFTC’s regulatory regime Section 15(a)(2) of the CEA. ability will not only provide investors with better access to a post-incident through compliance with obligations 3. Benefits already imposed by the SEC. remedy, but will also act as a deterrent Although the final rule relies As explained throughout this release, to behavior that is violative of the CEA primarily on a substituted compliance the basic approach the Commission has and/or the Commission’s regulations, approach, it imposes certain obligations taken to harmonization of disclosure and may reduce the frequency with on CPOs of RICs beyond what is and recordkeeping requirements for which investors are harmed. otherwise required by the federal CPOs of RICs under the securities and The Commission also believes that securities laws and SEC rules. These are commodities laws is substituted investors in RICs that hold commodity as follows: compliance. With very limited interests will benefit from this final rule • The CPO of a RIC will be required exceptions, a CPO of a RIC will satisfy as well. The Commission believes that to file notice of its use of the substituted its disclosure and recordkeeping the disclosure of prior performance for compliance regime outlined in § 4.12 obligations by maintaining compliance similar funds and accounts by CPOs of with NFA; with applicable securities law RICs with less than a three year • The CPO of a RIC with less than requirements and SEC regulations. This operating history provides valuable three years operating history will be approach offers benefits over possible information to investors. Pursuant to required to disclose the performance of alternatives, which, though not readily SEC guidance, RICs are currently all accounts and pools that are managed reduced to a dollar amount, the permitted, but not required, to report by the CPO and that have investment Commission believes are significant. past performance information for funds objectives, policies, and strategies The Commission will benefit from the and accounts with investment substantially similar to those of the information gathered from the annual objectives, policies, and strategies offered pool; and financial statements submitted to NFA. substantially similar to those of the • The CPO of a RIC will be required Though the reports filed with the SEC offered RIC in the disclosure required by to file the financial statements that it are publicly available and could be the SEC, therefore, many entities may prepares pursuant to its obligations with manually accessed by the Commission, not be accustomed to reporting such respect to the SEC with NFA and may the Commission believes that requiring information. However, the Commission file notice requesting an extension to CPOs of RICs to file a copy of their believes that for funds with less than align the Commission’s filing deadline annual financial statements with NFA is three years of operating history, the with that of the SEC. a more efficient and expedient means of disclosure of past performance In addition, the Commission has, after gathering required information information to potential investors is consideration of the issues presented in necessary to monitor CPO activity and necessary for a comprehensive the comment letters, determined to the markets. By having all CPO financial understanding of the risks of investing modify three provisions of part 4 for all statements in one centralized database, in a fund that trades above a de minimis CPOs, including CPOs of RICs. the Commission will be better able to amount in commodity interests. Specifically, the Commission is deleting quickly and effectively access Derivative markets are highly complex a provisions in §§ 4.23 and 4.7(b)(4) that information about all CPOs trading in and require specialized knowledge in require books and records to be kept at the markets overseen by the order to manage funds effectively. The the ‘‘main business location’’ of the Commission, allowing for a faster and Commission continues to believe that CPO. The Commission is updating better informed response to any the presentation of past performance §§ 4.23 and 4.7(b)(4) to allow all CPOs concerns that may arise regarding the provides investors with important trading of CPOs in derivatives markets. information regarding the experience of RICs will satisfy the obligations to provide periodic The submission of annual financial the adviser of a relatively new fund. A account statements pursuant to § 4.22, provided statements to NFA will also enable the prospective investor will, as a result of that the RIC’s current net asset value per share is Commission to gain a broader this requirement, be better able to assess available to investors, and provided that the RIC furnishes semi-annual and annual reports to understanding of the financial stability the prior performance of other funds the investors and files periodic reports with the SEC as adviser has managed. The Commission required by the SEC. 204 7 U.S.C. 19(a)(2). believes that this additional information

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will give prospective investors a more once every three years. The Commission additional disclosure, should provide complete sense of the ability of the believes the changes finalized within market participants and the general adviser to trade in derivatives markets. § 4.26 and § 4.36 eliminate the need to public with meaningful disclosure, For these reasons, the Commission is file more than one Disclosure Document including for example, with regard to requiring prior performance of a CPO of in any given year, reducing the costs on risks and fees, provide the Commission a RIC with less than three years CPOs and CTAs. with information necessary to its operating history to be disclosed as Overall, the Commission believes the oversight of CPOs, and ensure that CPOs permitted by SEC disclosure regulations final regulations will benefit CPOs of of RICs maintain appropriate records and guidance. RICs by permitting these entities to rely regarding their operations. As noted, in The CPO industry will also benefit on the filings made with the SEC to the event that the operator of the RIC from the amendments that the comply with many Commission fails to comply with the SEC Commission has made to provisions regulations. Further, the Commission administered regime, the operator of the applicable to all CPOs. First, the believes that all CPOs and CTAs will RIC will be in violation of its obligations Commission removed the requirement benefit from the amendments to under part 4 of the Commission’s in § 4.21 that a CPO receive a signed requirements under §§ 4.7(b)(4), 4.21, regulations and subject to enforcement acknowledgement of receipt of a 4.23, 4.26(b), and 4.36(b). The action by the Commission. Disclosure Document before accepting Commission also believes that the final The substituted compliance regime funds from a new participant. Given the regulations provide the public with adopted by the Commission in these electronic and web-based solicitation additional information that is vital to final rules provides that a CPO of a RIC strategies used by most entities today, informed participation in derivative will be deemed compliant with §§ 4.21, the Commission believes that that markets through investment in RICs. 4.22(a) and (b), 4.23, 4.24, 4.25, and 4.26 requirement may be outdated, and Because many participants in RICs are under the amendments to § 4.12, extended the exemption proposed for retail participants, the Commission provided that the CPO comply with all registered investment companies to believes that participants in RICs should applicable SEC RIC Rules. include all CPOs. be given additional information to help Section 4.12 also provides that an Second, the Commission removed the gauge the risks associated with entity must file a notice with the NFA requirement in §§ 4.23 and 4.7(b)(4) that derivatives trading and relevant past to take advantage of the Commission’s all books and records must be performance information in order for substituted compliance program for maintained at the main business office them to make better informed decisions. CPOs of RICs. The notice is effective of the CPO. Originally intended to As at least one commenter remarked, upon submission and must only be filed ensure that books and records were these vehicles are important investment once per pool. For purposes of readily accessible to the Commission, if vehicles for many retirement plans, calculating costs of the final rule, the necessary, the Commission believes that college savings plans, and other Commission has estimated that each this requirement, in the age of electronic investment goals. The Commission pool may require 2 hours to complete recordkeeping, may also be outdated. believes that the final rules provide the notice and file the notice with NFA Eliminating that requirement should flexibility and cost-efficiency for dual at an average salary cost of $76.93 per hour.205 relieve costs for market participants registrants at the same time that the The Commission further without compromising the estimates that 418 sponsors may be rules increase the ability for investors to Commission’s regulatory objectives. The affected, 206 each with an average of 3 participate in these vehicles in a more notice filing under § 4.23 allows the informed and responsible manner. As Commission to have accurate 205 The Commission staff’s estimates concerning such, the Commission believes the final information on hand should it need to the wage rates are based on 2011 salary information rules achieve the goal enumerated in the access the books and records of any CPO for the securities industry compiled by the Proposal: to mitigate the costs Securities Industry and Financial Markets (including CPOs of RICs). associated with compliance without Association (‘‘SIFMA’’). The $76.93 per hour is Finally, the Commission has derived from figures from a weighted average of determined to finalize the proposed compromising the effectiveness of the salaries across different professions from the SIFMA amendments regarding the cycle for Commission’s regulatory regime. Report on Management & Professional Earnings in the Securities Industry 2011, modified to account updating Disclosure Documents, 4. Costs for an 1800-hour work-year, adjusted to account for outlined in § 4.26 for CPOs and § 4.36 the average rate of inflation in 2012, and multiplied i. Costs Associated With Substituted for CTAs, to allow for a twelve-month by 1.3 to account for overhead and other benefits. cycle instead of the current nine-month Compliance The Commission anticipates that compliance with the part 4 provisions would require the work of an cycle. In the Commission’s opinion, the In this final rule, the Commission has information technology professional (to provide additional operational and cost determined to adopt a substituted necessary information); a compliance manager (to efficiencies gained by these compliance regime for CPOs of RICs. determine whether or not an entity is eligible for The Commission is adopting a an exemption in accordance with the Commission’s amendments justify the three-month regulations); and an associate general counsel (to delay for investors in receiving updated compliance regime for CPOs of RICs prepare notices of exemption). Thus, the wage rate disclosure information. The largely premised upon such entities’ is a weighted national average of salary for Commission believes that the adherence to the compliance obligations professionals with the following titles (and their under SEC RIC Rules, whereby the relative weight); ‘‘programmer (senior)’’ (30% information provided in the Disclosure weight), ‘‘compliance manager’’ (45%), and Document will be sufficiently timely for Commission will accept compliance by ‘‘assistant/associate general counsel’’ (25%). The pool participants to make informed such entities with the disclosure, Commission uses this wage estimate in estimating investment decisions. At the same time, reporting, and recordkeeping regime costs for provisions that were not included in commenters’ assessments of costs and benefits; for the extended cycle allows Disclosure administered by the SEC as substituted provisions that were included in the commenters’ Document reporting to align with compliance with part 4 of the assessments of costs and benefits, the Commission annual financial statement reporting. Commission’s regulations. The utilizes the estimates provided by the commenters. Further, with a nine-month cycle, a CPO Commission has concluded that this is All estimates have been rounded to the nearest hundred dollars. or CTA would need to file and appropriate because it believes that 206 There currently is no source of reliable distribute two Disclosure Documents in general reliance upon the SEC’s information regarding the general use of derivatives the same calendar year approximately compliance regime, with minor Continued

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pools subject to the notice requirement. specific market problems that may occur estimated costs associated with revising On this basis, the Commission as a result of the rule, including reduced registration statements to include CFTC- anticipates a one-time cost per-entity of liquidity and potential price impacts required disclosures under the Proposal approximately $500.207 Across all should funds determine to reduce their and costs associated with filing affected entities, the Commission positions in derivatives in order to prospectuses with NFA.216 estimates a total one-time cost of avoid additional compliance The final rules provide in § 4.12(c) approximately $192,900.208 The obligations.212 Commenters also stated that CPOs of RICs may take advantage Commission believes that this is the that RIC shareholders would bear many of the Commission’s substituted extent of the costs associated with the of the costs of these rules in several compliance provisions for all substituted compliance regime. ways, including but not limited to, requirements under §§ 4.24, 4.25, and The Commission received many higher fees and lower returns.213 4.22(a) and (b). The final rules do not comments regarding the costs of the In adopting a broad substituted require the disclosures contemplated Proposal.209 Generally, commenters compliance regime wherein CPOs of under the Proposal nor do they require expressed concern about the cost RICs will be deemed compliant with CPOs of RICs to file Disclosure imposed by the Proposal with respect to §§ 4.21, 4.22(a) and (b), 4.23, 4.24, 4.25, Documents with NFA for review. the compliance obligations of RICs and and 4.26 under the amendments to Because the Commission anticipates the Commission’s consideration § 4.12, provided that the CPO comply that all CPOs of RICs will take thereof.210 Specifically, commenters with all SEC RIC Rules, the Commission advantage of the substituted compliance stated that RICs were already subject to expects that it has reduced or program to avoid any additional cost, extensive regulation, and that additional eliminated any impetus for RICs to the Commission estimates that none of compliance obligations required of reduce their positions in markets the costs identified by commenters that CPOs under part 4 of the Commission’s overseen by the Commission and are associated with complying with regulations may conflict with, or subsequently any negative impact on §§ 4.24, 4.25, and 4.22(a) and (b) will be potentially be duplicative of, market quality indicators. The incurred by CPOs of RICs. requirements under the SEC RIC Commission also believes it has greatly ICI, as well as other commenters, also Rules.211 Commenters further cited reduced, and in many cases eliminated, identified the following additional costs the costs CPOs of RICs face, which of the Proposal: (1) Costs to registrants by registered investment companies. Because of this could be passed through to investors in if, because of complications associated lack of information, in the Proposal, the with a different review process and/or Commission derived the estimated entities affected such RICs. and the number of burden hours associated with The Commission also received more than one reviewing entity, their this proposal through the use of statistical analysis. comments from ICI and Invesco The Commission estimated that 1,266 pools regarding the costs associated with surveyed funds as follows: ($2,137.50 ongoing costs would require 418 entities to register as CPOs due per fund) × (551 surveyed funds) = $1,177,800. to the amendments to § 4.5. To determine the discrete provisions in part 4 that would With respect to the preparation of account average number of pools per entity, the Commission have been imposed under the statements under § 4.22(a) and (b), ICI calculated a divided the estimated number of pools by the Proposal.214 These letters enumerated one-time cost associated with the separate estimated number of entities to arrive at about 3 specific costs associated with three calculation of brokerage commissions as follows: pools per entity. The methodology used to (42 hours per fund) × ($171 per hour) = $ 7,182 per determine this estimate is fully explained supra in general areas addressed in the Proposal: fund. ICI calculated the aggregate costs associated this release. The Commission understands from (1) General disclosure requirements with brokerage commissions for all surveyed funds NFA that as of February 1, 2013, there were six new under § 4.24; (2) performance disclosure as follows: ($7,182 cost per fund) × (551 surveyed registered CPOs and five CPOs whose registration requirements under § 4.25; and (3) funds) = $3,957,300. pre-dates the amendments to § 4.5 that have ICI calculated the costs for each fund associated compliance obligations for 149 RICs that are financial reporting requirements under with preparing and distributing account statements commodity pools. Due to limitations on this data § 4.22(a) and (b).215 ICI also provided per § 4.22(a) and (b) as follows: (5.75 hours per arising from other actions taken by the Commission fund) × ($122.40 average cost per hour) = $703.84 or divisions thereof, the Commission does not 212 Katten Letter; Dechert Letter; Fidelity Letter; per fund per statement. ICI calculated that the believe that the data is sufficiently finalized to use NYCBA Letter. aggregate costs associated with the preparation and as the basis for its PRA or cost benefit calculations. 213 ABA Letter; Dechert Letter; Invesco Letter; distribution of account statements for all surveyed Therefore, the Commission has determined to use funds as follows: ($703.84 costs per fund) × (551 the numbers derived through the methodology used Katten Letter; SIFMA AMG Letter; AXA Letter: AII × Letter. surveyed funds) (12 monthly statements) = in the Proposal. Notwithstanding the limitations in $4,653,800. 214 See, ICI Letter; Invesco Letter. The the data to date, the Commission believes that these In total, for all § 4.24 provisions, ICI estimated the numbers are useful in considering the likely impact Commission believes that the industry survey 551 responsive funds would incur a cost of $5.8 on the final rule on industry. conducted by ICI provides useful insight about million initially and $2.4 million annually. This 207 potential costs associated with various part 4 The Commission calculates this amount as was derived from hour and cost estimates for 5 × requirements, and as described further therein, has follows: (3 pools per sponsor) (2 hours per pool) different categories of disclosure that ICI developed × used the results in its consideration of costs ($76.93 per hour) = $461.58. from its survey data. For the industry as a whole, 208 associated with the final rules. The Commission calculates this amount as ICI estimated that these costs could be as high as × 215 follows: ($461.58 per sponsor) (418 sponsors) = ICI Letter. ICI reported that of the 42 advisers $13.3 million initially and $5.5 million on an $192,940.44. who responded to their survey, 33 advisers ongoing annual basis. 209 representing 551 funds with total net assets of $773 The Commission also received several 216 ICI Letter. ICI calculated a one-time cost billion anticipated having to register under the comments regarding the costs of the amendments to associated with the revision of prospectuses for all § 4.5 that were finalized in the February Final Rule newly amended § 4.5. ICI rounded all of its surveyed funds as follows: (15 hours per fund) × and asserting that the Commission should not have aggregate cost estimates to the nearest $100. ($215 per hour) × (551 surveyed funds) = considered the costs of compliance separately from ICI calculated the initial costs of prior $1,777,000 to revise their prospectuses. ICI also those of registration. See, SIFMA AMG Letter, performance disclosure required for all funds under calculated the initial cost of filing prospectuses Dechert Letter, ICI Letter, Invesco Letter. The § 4.25 as follows: (18 hours per fund for initial with NFA as follows: (29.5 hours per fund) × ($199 × Commission notes that it considered those costs compliance) ($227 per initial compliance hour) = per hour) = $5,870.50 per fund. ICI calculated the related to the registration of CPOs of RICs under $4,086 per fund. ICI also calculated the ongoing aggregate initial cost for the surveyed funds as § 4.5 in the rules adopting such amendments and costs of prior performance disclosure required for follows: ($5,870.50 cost per fund) × (551 surveyed such comments are outside the scope of this all funds under § 4.25 as follows: (9.5 hours per funds) = $3,234,600. ICI calculated the ongoing cost rulemaking. fund for ongoing compliance) × ($225 per ongoing of filing prospectuses with NFA per fund as 210 See, ICI Letter; Dechert Letter; Katten Letter; compliance hour) = $2,137.50 per fund. follows: (15.5 hours per fund) × ($195 per hour) = NYCBA Letter; ABA Letter; Fidelity Letter; AII ICI calculated the aggregate initial costs for the $3,022.50 per fund. ICI calculated the aggregate letter; Invesco Letter; SIFMA AMG Letter; AXA surveyed funds as follows: ($4,086 initial cost per ongoing cost for all surveyed funds as follows: (551 Letter. fund) × (551 surveyed funds) = $2,251,400. ICI also surveyed funds) × ($3,022.50 cost per fund) = 211 See, e.g., ICI Letter; SIFMA AMG Letter. calculated the aggregate ongoing costs for the $1,665,400.

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Disclosure Documents are not approved (1)–(3) above. The items that will be Proposal to include past performance in a timely fashion and the RIC must required of CPOs of RICs in addition to information for all other funds operated temporarily stop issuing shares; 217 (2) what is required by the SEC, which are by the sponsor of the fund with less costs associated with seeking relief from discussed infra, will be disclosed in than a three year operating history. As the SEC, CFTC, or NFA to comply with accordance with SEC regulations, which noted above, the Commission has CFTC disclosure and reporting are familiar to investors and should altered this provision to require regulations, where conflicts exist; 218 (3) largely eliminate any costs associated disclosure of only those pools and costs to the CFTC, SEC, and NFA of with (4) and (5) above. Moreover, accounts that are managed by the CPO reviewing the additional filings, because the Commission has adopted in and that have investment objectives, including the potential for multiple these final rules a substituted policies, and strategies substantially reviews of each filing in the early stages, compliance regime wherein CPOs of similar to those of the offered pool with as registrants seek to develop RICs will be deemed compliant with less than a three year operating history. disclosures that are acceptable to all §§ 4.21, 4.22(a) and (b), 4.23, 4.24, 4.25, In so doing, the Commission has regulators; (4) likely significant investor and 4.26 under the amendments to significantly reduced the requirements confusion due to inconsistent and at § 4.12, provided that the CPO comply regarding past performance disclosure. times inapplicable disclosures; 219 and with all SEC RIC Rules, the Commission As such, the Commission believes it can (5) costs associated with undoing does not believe that significant reasonably reduce the number of hours decades of effort by the SEC to develop modifications to CPOs of RICs’ required both initially and in ongoing its fund disclosure regime for RICs.220 compliance and disclosure compliance. The Commission Commenters also raised concerns about infrastructures will be necessary. anticipates initial and ongoing cost of the costs associated with modifications ii. Costs Associated With Certain approximately 15 hours per fund. The to their internal compliance controls Additional Requirements for CPOs of Commission anticipates that 368 and additional systems that may be RICs and Other Amendments sponsors will need to provide additional necessary to comply with the provisions past performance disclosure for an of the Proposal.221 Although the final rule largely adopts average of 1 fund per sponsor at 15 Additionally, one commenter stated a substituted compliance approach, the hours per fund.227 Using ICI’s hourly that the legal conflicts and operational Commission acknowledges that there cost estimates, described above, the costs that would result from the will be some costs associated with the Commission estimates an initial annual application of the Proposal to CPOs of final rule that will be borne by dually cost of $4,000 per entity 228 and an RICs would be substantial.222 According registered entities. In particular, CPOs of ongoing annual cost of $3,500 per to that commenter, many RICs belong to RICs with less than a three-year entity.229 Across all affected entities, the large fund families that may include operating history will also have to Commission estimates an initial annual dozens, if not hundreds, of funds.223 provide disclosure regarding the past cost of $1,462,800 230 and an ongoing This commenter further stated that performance of all accounts and pools annual cost of $1,286,200.231 significant economies of scale exist with that are managed by the CPO and that have investment objectives, policies, respect to compliance with SEC 227 Based on information provided by the ICI in and strategies substantially similar to regulations, because the advisers to its comment letter, of the 551 surveyed funds that those of the offered pool in accordance would trigger registration of their advisor, 159 of these fund families are able to operate with SEC regulations and guidance. those funds had less than three years operating multiple funds on similar timetables Additionally, CPOs of RICs will still be history. This constitutes approximately 30 percent and comply with similar filing and of the surveyed funds that would not be excluded subject to § 4.22(c) and (d), requiring the disclosure requirements.224 The under § 4.5. The funds were operated by 29 of the CPO of a RIC to submit to NFA a copy 33 sponsors that expected to register, which commenter contended that complying of the annual financial statements the constitutes 88 percent of the surveyed sponsors with the CFTC rules as described in the RIC provides to the SEC. Finally, all expecting to register. Applying these percentages to Proposal would not only impose the Commission’s estimated number of 1,266 pools CPOs that use a third-party provider to significant new costs on the RICs that and 418 sponsors, the Commission expects maintain books and records are required approximately 368 pool operators to be subject to are subject to such rules, but also to submit a notice with NFA with the the disclosure requirements for substantially similar impede the ability of advisers to name of the third-party provider, among accounts and funds with respect to 380 pools. With efficiently manage other funds that are respect to the estimated hours required to prepare 225 other details, to ensure that the the past performance disclosure, the Commission not subject to CFTC requirements. Commission has full access to the books The Commission does not anticipate has made an informed estimate premised upon the and records of the CPO. information provided by ICI and that it believes these qualitative concerns to be The Commission anticipates that reflects the reduced disclosure obligations under applicable as a result of the substituted CPOs of RICs will incur costs to disclose the final rule as compared to the Proposal. compliance regime provided in the final 228 The Commission calculates the amount as past performance information for × × rules. Registrants will not be required to follows: (1 RIC per CPO) (15 hours per RIC) substantially similar funds and ($265 initial costs per hour) = $3,975. submit to multiple review processes, accounts, if the fund has been in 229 The Commission calculates the amount as eliminating the costs associated with operation for less than three years. The follows: (1 RIC per CPO) × (15 hours per RIC) × ICI, in its estimates of costs and benefits, ($233 ongoing costs per hour) = $3,495. 217 ICI Letter. See also, Katten Letter; ABA Letter; 230 The Commission calculates the amount as AXA Letter; NYCBA Letter. estimated that costs associated with follows: ($3,975 estimated initial cost per CPO) × 218 ICI Letter. See also, Dechert Letter; IAA Letter; prior performance disclosure for funds (368 estimated number of CPOs of RICs with less Fidelity Letter; SIFMA AMG Letter; ABA Letter; with less than a three year operating than 3 years performance) = $1,462,800. Katten Letter; AXA Letter; NYCBA Letter. 231 The Commission calculates the amount as history would amount to 34 hours per × 219 ICI Letter. See, MFA Letter. fund at $265 per hour initially, and 25.5 follows: ($3,495 estimated ongoing cost per CPO) 220 ICI Letter. See, AXA Letter. (368 estimated number of CPOs of RICs with less hours per fund at $233 per hour each than 3 years performance) = $1,286,160. This 221 NYCBA Letter; Dechert Letter; AXA Letter; ongoing cost estimate assumes that all RICs with ABA Letter; SIFMA AMG Letter. year in ongoing compliance 226 less than three years performance are newly formed 222 requirements. The ICI’s estimates are SIFMA AMG Letter. and have no performance history. Many RICs 223 Id. based on the requirement in the subject to the disclosure requirement, however, may 224 Id. have operated for one or two years and thus incur 225 Id. 226 ICI Letter. Continued

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The Commission also anticipates that ongoing cost of $192,900.238 The the aggregate.243 Likewise, the CPOs of registered investment Commission believes this to be a Commission expects annual ongoing companies will incur small costs for conservative estimate, allowing for the costs associated with the final rules to each fund due to the requirement that maximum amount of time necessary to be $4,000 per entity 244 and $1,479,100 the CPO of each registered investment upload the fund’s financial statements in the aggregate.245 company must submit a copy of the and submit them to NFA. b. Section 15(a) Considerations fund’s annual financial statements to Finally, the Commission anticipates a Section 15(a) of the CEA requires the the Commission via NFA.232 The small burden to be incurred by all CPOs, Commission to consider the effects of its Commission anticipates that the cost to including registered investment actions in light of the following five submit each fund’s financial statements companies required to be registered as factors: to be relatively small because the CPOs under § 4.5, that wish to keep Commission is requiring only a copy of their books and records with a third- 1. Protection of Market Participants and the statements required to be submitted party service provider. Under §§ 4.23 the Public to the SEC under the SEC RIC Rules to and 4.7(b)(4), such entities must file a The Commission believes the rules be submitted to NFA. The Commission notice with NFA to inform the promulgated in this release protect anticipates that the additional Commission and NFA of the entity’s market participants by mitigating the requirement imposed by the rule in intent to utilize a third-party service costs associated with compliance. The § 4.22 necessitates only addressing any provider as well as the name and rules maintain the effectiveness of the potential formatting changes—i.e. contact information of the third party. consumer protections of the making sure the document is in PDF Because the Commission cannot be sure form as required by NFA—and how many CPOs will use third-party Inclusion of Past Performance, § 4.25 = (1 pool per sponsor) × (15 hours per pool) × ($265 per hour) uploading the document via NFA’s Easy service providers, the Commission estimates that all CPOs will take = $3,975.00. File system (to which advisers should advantage of the amendments to the Submission of Annual Report, § 4.22(c) = (3 pools already have access by virtue of their per sponsor) × (2 hours per pool) × ($76.93 per record-keeping requirements under registration). Thus, the Commission hour) = $461.58. § 4.23 and § 4.7.239 The Commission anticipates that CPOs of RICs will Notice of Third Party Record-keeper, §§ 4.23, estimates that CPOs, including 4.7(b)(4) = (2 hours per sponsor) × ($76.93 per hour) require no more than 2 hours per fund registered investment companies, will = $153.86. to comply with § 4.22. The Commission incur a one-time per-entity cost of Total per-entity initial cost = ($461.58) + estimates that each CPO has an average ($3,975.00) + ($461.58) + ($115.40) + ($153.86) = $200.240 The Commission anticipates $5,061.02. of 3 RICs. Thus, at a rate of $76.93 per that most CPOs will take advantage of See supra notes 207, 228, 234, and 240. 233 hour, the Commission estimates an this provision, and thus estimates a one- 243 The Commission calculates the aggregate initial cost of approximately $500 234 time estimated cost of $627,700 for all initial cost by summing the aggregate initial costs and an annual ongoing cost of 241 of the provisions described supra. Estimates may CPOs. not sum to total due to rounding effects. approximately $500.235 As described in The Commission expects that all Notice of Substituted Compliance, § 4.12 = the PRA section of this release, the × dually-registered entities will take (461.58 per sponsor) (418 sponsors) = Commission estimates that $192,940.44. advantage of the substituted compliance approximately 418 sponsors will Inclusion of Past Performance, § 4.25 = ($3,975.00 regime available under the final per sponsor) × (368 sponsors) = $1,462,800.00. register as a result of the amendments to regulations. The Commission thus 236 Submission of Annual Report, § 4.22(c) = § 4.5. Using this figure, the expects that the total initial costs ($461.58 per sponsor) × (418 sponsors) = Commission anticipates a total initial associated with the final rules will be $192,940.44. 237 cost of $192,900 and an annual total 242 Notice of Third Party Record-keeper, §§ 4.23, $5,100 per entity and $2,476,400 in 4.7(b)(4) = ($153.86 per operator) × (4,080 operators) = $627,748.80. a lower total cost. The Commission’s estimate 238 The Commission calculates this amount as Total aggregate initial cost = ($192,940.44) + therefore may overstate the actual costs that past follows: ($461.58 estimated ongoing cost per CPO) ($1,462,800.00) + ($192,940.44) + ($48,235.11) + × performance disclosure entails. (418 estimated number of CPOs of RICs) = ($627,748.80) = $2,476,429.68. 232 The Commission notes that all CPOs are $192,940.44. See supra notes 208, 229, 237, and 241. required to submit an annual report to NFA. 239 The Commission has previously estimated that 244 The Commission calculates the per-entity Though the reports filed with the SEC are public each CPO that subject to § 4.23 had costs associated ongoing cost by summing the per-entity ongoing domain could be manually accessed by the with approximately 50 hours associated with costs of the provisions described supra. Estimates Commission, the Commission believes that recordkeeping obligations and that each CPO may not sum to total due to rounding effects. requiring a copy of said reports to be filed with subject to § 4.7(b)(4) had costs associated with Inclusion of Past Performance, § 4.25 = (1 pool NFA is a more efficient and expedient means of approximately 40 hours associated with per sponsor) × (15 hours per pool) × ($233 per hour) gathering required information. By having all CPO recordkeeping obligations. Because the Commission = $3,475.00. financial statements in one centralized database, the is estimating that all registered CPOs will use third- Commission will be better able to quickly and Submission of Annual Report, § 4.22(c) = (3 pools party service providers for recordkeeping purposes, × × effectively access information about all CPOs the Commission expects that costs associated with per sponsor) (2 hours per pool) ($76.93 per trading in the markets overseen by the Commission, §§ 4.7(b)(4) and 4.23 will be reduced, although the hour) = $461.58. allowing for a faster and better informed response reduction cannot be quantified at this time. Total per-entity ongoing cost = ($3,475.00) + to any concerns that may arise regarding the trading 240 The Commission calculates this amount as ($461.58) = $3956.55. of CPOs in derivatives markets. follows: (2 estimated hours per notice) × ($76.93 See supra notes 235 and 238. 233 See, supra note 205. estimated cost per hour) = $153.86. 245 The Commission calculates the aggregate 234 The Commission calculates the amount as 241 The Commission calculates this amount as ongoing cost by summing the aggregate ongoing follows: (6 hours per entity) × ($76.93 average salary follows: ($153.86 estimated cost per notice) × (4,080 costs of the provisions described supra. Estimates cost per hour) = $461.58. estimated total number of registered CPOs) = may not sum to total due to rounding effects. 235 The Commission calculates this amount as $627,748.80. Inclusion of Past Performance, § 4.25 = ($3,475.00 × follows: (6 hours per entity) × ($76.93 average salary 242 The Commission calculates the per-entity per sponsor) (368 sponsors) = $1,286,160.00. cost per hour) = $461.58. initial cost by summing the per-entity initial costs Submission of Annual Report, § 4.22(c) = 236 See supra note 206. of the provisions described supra. Estimates may ($461.58 per sponsor) × (418 sponsors) = 237 The Commission calculates this amount as not sum to total due to rounding effects. $192,940.44. follows: ($461.58 estimated initial cost per CPO) × Notice of Substituted Compliance, § 4.12 = (3 Total aggregate ongoing cost = ($1,286,160.00) + (418 estimated number of CPOs of RICs) = pools per sponsor) × (2 hours per pool) × ($76.93 ($192,940.44) = $1,479,100.44. $192,940.44. per hour) = $461.58. See supra notes 235 and 242.

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Commission’s regulatory regime while Accordingly, CFTC amends 17 CFR (D) Contains representations from the reducing costs for dually-registered part 4 as follows: pool operator that: entities. Though some costs are (1) It will promptly amend the anticipated as a result of the final rules PART 4—COMMODITY POOL statement if the contact information or in order to provide additional OPERATORS AND COMMODITY location of any of the books and records information beyond that required by the TRADING ADVISORS required to be kept by this section changes, by identifying in such SEC, the Commission believes such ■ costs are necessary because the 1. Revise the authority citation for part amendment the new location and any information the Commission is 4 to read as follows: other information that has changed; requiring of CPOs of RICs should Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, (2) It remains responsible for ensuring provide additional insight for potential 6m, 6n, 6o, 12a, and 23. that all books and records required by investors in deciding whether to invest ■ 2. In § 4.7, revise paragraph (b)(4) and this section are kept in accordance with in a fund that commits more than a de add paragraph (b)(5) to read as follows: § 1.31; minimis portion of its assets to (3) Within 48 hours after a request by derivative trading. § 4.7 Exemption from certain part 4 a representative of the Commission, it requirements for commodity pool operators will obtain the original books and In addition, the Commission believes with respect to offerings to qualified eligible the final rules provide a benefit to all records from the location at which they persons and for commodity trading are maintained, and provide them for CPOs by updating and modernizing advisors with respect to advising qualified certain provisions that may be outdated eligible persons. inspection at the pool operator’s main in the electronic age. CPOs will not be business office; Provided, however, that * * * * * if the original books and records are required to incur costs to comply with (b) * * * permitted to be, and are maintained, at regulations that, in the absence of (4) Recordkeeping relief. Exemption a location outside the United States, its information to the contrary and in light from the specific requirements of § 4,23; territories or possessions, the pool of the Commission’s current Provided, That the commodity pool operator will obtain and provide such understanding, may not be necessary to operator must maintain the reports original books and records for ensure the effectiveness of the referred to in paragraphs (b)(2) and (3) inspection at the pool operator’s main Commission’s regulatory regime. of this section and all books and records business office within 72 hours of such Furthermore, by lessening the prepared in connection with his regulatory costs RICs face, shareholders a request; and activities as the pool operator of the (4) It will disclose in the pool’s of these vehicles should not see much exempt pool (including, without of an increase in fees or a decrease in Disclosure Document the location of its limitation, records relating to the books and records that are required returns, protecting the viability of these qualifications of qualified eligible vehicles that are utilized by millions of under this section. persons and substantiating any (ii) The pool operator shall also file families for their investment needs. performance representations). Books electronically with the National Futures 2. Efficiency, Competitiveness, and and records that are not maintained at Association a statement from each Financial Integrity of Markets the pool operator’s main business office person who will be keeping required shall be maintained by one or more of books and records in lieu of the pool In light of the fact that these the following: the pool’s administrator, operator wherein such person: harmonizing regulations will not pose distributor or custodian, or a bank or (A) Acknowledges that the pool significant costs on CPOs of RICs, the registered broker or dealer acting in a operator intends that the person keep Commission does not believe that these similar capacity with respect to the and maintain required pool books and regulations will have a negative impact pool. Such books and records must be records; on the efficiency, competitiveness, or made available to any representative of (B) Agrees to keep and maintain such financial integrity of markets. the Commission, the National Futures records required in accordance with 3. Price Discovery Association and the United States § 1.31 of this chapter; and Department of Justice in accordance (C) Agrees to keep such required The Commission has not identified a with the provisions of § 1.31. books and records open to inspection by specific effect on price discovery as a (5) If the pool operator does not any representative of the Commission, result of these harmonizing regulations. maintain its books and records at its the National Futures Association, or the 4. Sound Risk Management main business office, the pool operator United States Department of Justice in shall: accordance with § 1.31 of this chapter. The Commission has not identified a (i) At the time it registers with the ■ specific effect on sound risk 3. In § 4.12 Commission or delegates its ■ a. Revise paragraphs (c)(1) and (2) management as a result of these recordkeeping obligations, whichever is introductory text; harmonizing regulations. later, file a statement that: ■ b. Remove paragraph (c)(2)(iii); 5. Other Public Interest Considerations (A) Identifies the name, main business ■ c. Add paragraph (c)(3); and address, and main business telephone ■ d. Revise paragraphs (d)(1)(iii) and The Commission has not identified number of the person(s) who will be (iv). other public interest considerations keeping required books and records in The revisions and addition read as related to the costs and benefits of these lieu of the pool operator; follows: harmonizing regulations. (B) Sets forth the name and telephone number of a contact for each person § 4.12 Exemption from provisions of part List of Subjects in 17 CFR Part 4 who will be keeping required books and 4. Advertising, Brokers, Commodity records in lieu of the pool operator; * * * * * futures, Commodity pool operators, (C) Specifies, by reference to the (c) Exemption from Subpart B for Commodity trading advisors, Consumer respective paragraph of this section, the certain commodity pool operators based protection, Reporting and recordkeeping books and records that such person will on registration under the Securities Act requirements. be keeping; and of 1933 or the Investment Company Act

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of 1940. (1) Eligibility. Subject to books and records be made available to days if reasonable reproduction and compliance with the provisions of participants for inspection and/or distribution costs are paid by the pool paragraph (d) of this section, any person copying at the request of the participant. participant. If the books and records are who is registered as a commodity pool (d)(1) * * * maintained at the commodity pool operator, or has applied for such (iii) Contain representations that: operator’s main business office that is registration, may claim any or all of the (A) The pool will be operated in outside the United States, its territories relief available under paragraph (c)(2) of compliance with paragraph (b)(1)(i) of or possessions, then upon the request of this section if, with respect to the pool this section and the pool operator will a Commission representative, the pool for which it makes such claim: comply with the requirements of operator must provide such books and (i) The units of participation will be paragraph (b)(1)(ii) of this section; records as requested at the place in the offered and sold pursuant to an effective (B) The pool will be operated in United States, its territories or registration statement under the compliance with paragraph (c)(1) of this possessions designated by the Securities Act of 1933; or section and the pool operator will representative within 72 hours after the (ii) The pool is registered under the comply with the requirements of pool operator receives the request. Investment Company Act of 1940. paragraph (c)(2) of this section; or (a) * * * (2) Relief available to pool operator (C) The pool will be operated in (4) A subsidiary ledger or other claiming relief under paragraph (c)(1)(i). compliance with paragraph (c)(1) of this equivalent record for each participant in The commodity pool operator of a pool section and the pool operator will the pool showing the participant’s name whose units of participation meet the comply with the requirements of and address and all funds, securities criteria of paragraph (c)(1)(i) if this paragraph (c)(3) of this section; and other property that the pool section may claim the following relief: (iv) Specify the relief sought under received from or distributed to the * * * * * paragraph (b)(2), (c)(2), or (c)(3) of this participant. This requirement may be (3) Relief available to pool operator section, as the case may be; satisfied through a transfer agent’s claiming relief under paragraph * * * * * maintenance of records or through a list (c)(1)(ii). The commodity pool operator ■ 4. Add § 4.17 to read as follows: of relevant intermediaries where shares of a pool whose units of participation are held in an omnibus account or meet the criteria of paragraph (c)(1)(ii) § 4.17 Severability. through intermediaries. of this section may claim the following If any provision of this part, or the * * * * * relief: application thereof to any person or (c) If the pool operator does not (i) The pool operator of an offered circumstances, is held invalid, such maintain its books and records at its pool will be exempt from the invalidity shall not affect other main business office, the pool operator requirements of §§ 4.21, 4.24, 4.25, and provisions or application of such shall: 4.26; Provided, that provision to other persons or (1) At the time it registers with the (A) The pool operator of an offered circumstances which can be given effect Commission or delegates its pool with less than a three-year without the invalid provision or recordkeeping obligations, whichever is operating history discloses the application. later, file a statement that: performance of all accounts and pools (i) Identifies the name, main business that are managed by the pool operator § 4.21 [Amended] address, and main business telephone and that have investment objectives, ■ 5. Amend § 4.21 by removing and number of the person(s) who will be policies, and strategies substantially reserving paragraph (b). keeping required books and records in similar to those of the offered pool; and, ■ 6. Amend § 4.23 by revising the lieu of the pool operator; (B) The disclosure provided with introductory text and paragraph (a)(4) (ii) Sets forth the name and telephone respect to the offered pool complies and adding paragraph (c) to read as number of a contact for each person with the provisions of the Investment follows: who will be keeping required books and Company Act of 1940, the Securities Act records in lieu of the pool operator; of 1933, the Securities Exchange Act of § 4.23 Recordkeeping. (iii) Specifies, by reference to the 1934, the regulations promulgated Each commodity pool operator respective paragraph of this section, the thereunder, and any guidance issued by registered or required to be registered books and records that such person will the Securities and Exchange under the Act must make and keep the be keeping; and Commission or any division thereof. following books and records in an (iv) Contains representations from the (ii) Exemption from the Account accurate, current and orderly manner. pool operator that: Statement distribution requirement of Books and records that are not (A) It will promptly amend the §§ 4.22(a) and (b); Provided, however, maintained at the pool operator’s main statement if the contact information or that the pool operator: business office shall be maintained by location of any of the books and records (A) Causes the current net asset value one or more of the following: the pool’s required to be kept by this section per share to be available to participants; administrator, distributor or custodian, changes, by identifying in such (B) Causes the pool to clearly disclose: or a bank or registered broker or dealer amendment the new location and any (1) That the information will be acting in a similar capacity with respect other information that has changed; readily accessible on an Internet Web to the pool. All books and records shall (B) It remains responsible for ensuring site maintained by the pool operator or be maintained in accordance with that all books and records required by its designee or otherwise made available § 1.31. All books and records required this section are kept in accordance with to participants and the means through by this section except those required by § 1.31; which the information will be made paragraphs (a)(3), (a)(4), (b)(1), (b)(2) and (C) Within 48 hours after a request by available; and (b)(3) must be made available to a representative of the Commission, it (2) The Internet address of such Web participants for inspection and copying will obtain the original books and site, if applicable; and during normal business hours. Upon records from the location at which they (iii) Exemption from the provisions of request, copies must be sent by mail to are maintained, and provide them for § 4.23 that require that a pool operator’s any participant within five business inspection at the pool operator’s main

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business office; Provided, however, that (iii) Agrees to keep such required more than twelve months prior to the if the original books and records are books and records open to inspection by date of its use. permitted to be, and are maintained, at any representative of the Commission or * * * * * a location outside the United States, its the United States Department of Justice territories or possessions, the pool in accordance with § 1.31 of this chapter Issued in Washington, DC, on August 12, operator will obtain and provide such and to make such required books and 2013, by the Commission. original books and records for records available to pool participants in Melissa D. Jurgens, inspection at the pool operator’s main accordance with this section. Secretary of the Commission. business office within 72 hours of such ■ 7. Amend § 4.26 by revising paragraph Appendix to Final Rule on a request; and (a)(2) to read as follows: (D) It will disclose in the pool’s Harmonization of Compliance Disclosure Document the location of its § 4.26 Use, amendment and filing of Obligations for Registered Investment books and records that are required Disclosure Document. Companies Required to Register as under this section. (a) * * * Commodity Pool Operators— (2) The pool operator shall also file (2) No commodity pool operator may Commission Voting Summary electronically with the National Futures use a Disclosure Document or profile Association a statement from each document dated more than twelve Note: The following appendix will not person who will be keeping required months prior to the date of its use. appear in the Code of Federal Regulations books and records in lieu of the pool * * * * * Appendix 1—Commission Voting Summary operator wherein such person: ■ 8. Amend § 4.36 by revising paragraph (i) Acknowledges that the pool (b) to read as follows: On this matter, Chairman Gensler and operator intends that the person keep Commissioners Chilton, O’Malia, and Wetjen and maintain required pool books and § 4.36 Use, amendment and filing of voted in the affirmative. records; Disclosure Document. [FR Doc. 2013–19894 Filed 8–21–13; 8:45 am] (ii) Agrees to keep and maintain such * * * * * BILLING CODE 6351–01–P records required in accordance with (b) No commodity trading advisor § 1.31 of this chapter; and may use a Disclosure Document dated

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