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August 26, 2005
Ms. Jean A. Webb
Re: Petition for Rulemaking to Amend CFTC Regulation 4.22
Dear Ms. Webb:
National Futures Association (NFA) respectfully petitions the Commission under CFTC Regulation 13.2 to amend CFTC Regulations 4.22 and 4.7. NFA petitions the Commission to amend Regulations 4.22 and 4.7 to eliminate the requirement that CPOs file manually signed pool financial statements (PFS) with NFA and replace it with a requirement that CPOs electronically file these statements and affirm the content in accordance with NFA's electronic filing system. The information required by CFTC Regulation 13.2 follows:
I. Text of Proposed Rule Amendments
§ 4.7 Exemption from certain part 4 requirements for commodity pool operators with respect to offerings to qualified eligible persons and for commodity trading advisors with respect to advising qualified eligible persons.
(b) Relief available to commodity pool operators.
(3) Annual report relief. (i) Exemption from the specific requirements of Secs. 4.22(c) and (d); Provided, That within 90 calendar days after the end of the exempt pool's fiscal year, the commodity pool operator files electronically with the National Futures Association and distributes to each participant in lieu of the financial information and statements specified by those sections, an annual report for the exempt pool. The Annual Report must be electronically filed and affirmed in accordance with National Futures Association's electronic filing system and must contain
§ 4.22 Reporting to Pool Participants
(c) Except as provided in paragraph (c)(6) of this section, each commodity pool operator registered or required to be registered under the Act must distribute an Annual Report to each participant in each pool that it operates, and must file electronically a copy of the Report with the National Futures Association, within 90 calendar days after the end of the pool's fiscal year or the permanent cessation of trading, whichever is earlier, but in no event longer than 90 days after funds are returned to pools participants. Provided, however, That if during any calendar year the commodity pool operator did not operate a commodity pool, the pool operator must so notify the National Futures Association within 30 calendar days after the end of such calendar year. The Annual Report must be electronically filed and affirmed in accordance with the requirements of National Futures Association's electronic filing system
II. Nature of NFA's Interest
As you know, NFA is a futures association registered under Section 17 of the Commodity Exchange Act. Registered CPOs are required to be Members of NFA and are regulated by NFA. NFA is interested in ensuring that CPOs are regulated in the most efficient and effective manner. NFA believes that mandatory participation in NFA's electronic filing system furthers that goal.
III. Supporting Arguments
National Futures Association implemented a voluntary pilot program for our CPO Members that allows them to file their PFSs with NFA electronically. The pilot program began with the December 31, 2004 annual reports. Since that time and through June 15, 2005, NFA has received 364 electronically filed statements (15.5% of the total statements received during that time period).1 NFA believes that the pilot program has been successful and provides for a more efficient and effective method for filing and receiving these statements. In addition to facilitating the filing of statements with NFA, putting the statements in electronic form makes it easier for CPOs to distribute statements to participants, thereby providing limited partners with more timely information and reducing CPOs' printing and postage costs. Moreover, the electronic filing process is relatively simple. The basic requirements are a document in PDF format and an internet connection. The certified public accountants that prepare these annual reports can provide the document in PDF format and any CPO that does not have internet access in its own offices can file the document through an internet connection available in a public facility, such as most public libraries. Given the benefits associated with and the ease in accomplishing electronic filing, NFA would like to make electronic filing of pool financial statements mandatory for all pool financial statements as of December 31, 2005.
CFTC Regulations 4.7 and 4.22, however, require CPOs to file manually signed pool financial statements with NFA. As you know, in order to implement the pilot program, the CFTC provided no action relief from the manual signature filing requirement of Regulation 4.22 to those CPOs participating in the CPO electronic filing pilot program. In order to meet NFA's goal to make electronic filing mandatory for all CPO Members, NFA requests that the Commission amend Regulations 4.22 and 4.7 to impose the mandatory requirement and to eliminate the manual signature requirement.
As discussed in NFA's no action request, eliminating the manual signature requirement will not diminish the protections provided by this requirement. The electronic filing system requires the CPO to read and agree to an electronic oath or affirmation at the time the CPO submits the electronic filing. Moreover, any CPO making the electronic filing will be required to maintain the financial statement with the CPO's original signature and provide it to NFA upon request.
NFA respectfully petitions the Commission to amend Regulations 4.7 and 4.22 as described above.
Very truly yours,
1 Many potential users of the EasyFile system indicated that they supported the EasyFile concept but had not taken advantage of the pilot program because they did not want to take the time to learn how to use the system until they were confident it would be an ongoing option.