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November 28, 2005
By Overnight Mail
Ms. Jean A. Webb
Re: Petition for Rulemaking to Amend Certain CFTC Part 4 Regulations
Dear Ms. Webb:
National Futures Association (NFA) respectfully petitions the Commission under CFTC Regulation 13.2 to amend CFTC Regulations 4.5, 4.7, 4.12, 4.13, 4.14 and Advisory 18-96. NFA petitions the Commission to amend these regulations to eliminate the requirement that CPO and CTA registrants and non-registrants file manually signed notices of exemption and replace it with a requirement that CPOs and CTAs file all exemption notices through NFA's electronic exemption filing system. The information required by CFTC Regulation 13.2 follows:
I. Text of Proposed Rule Amendments
Part 4- COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
§ 4.5 Exclusion from the definition of the term "commodity pool operator."
(c) Any person who desires to claim the exclusion provided by this section shall file electronically with the National Futures Association, through its electronic exemption filing system, a notice of eligibility; Provided, however, That a plan fiduciary who is not a named fiduciary as described in paragraph (a)(4) of this section may claim the exclusion through the notice filed by the named fiduciary.
(d)(1) Each person who has claimed an exclusion hereunder must, in the event that any of the information contained or representations made in the notice of eligibility becomes inaccurate or incomplete,
(f) Any notice required to be filed hereunder must be filed by a representative duly authorized to bind the person specified in (a) of this section.
§ 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.
(d) Notice of claim for exemption.
(1) A notice of a claim for exemption under this section must
(vi) Where the claimant is a commodity pool operator, state the closing date of the offering or that the offering will be continuous; and
(viii) Be filed with the National Futures Association at its headquarters office (Attn: Director of Compliance, Compliance Department); and
§ 4.12 Exemption from provisions of part 4.
(b)(3) Any registered commodity pool operator who desires to claim the relief available under §4.12(b) must file electronically a claim of exemption with National Futures Association through its electronic exemption filing system.
(ii) (i) Provide the name, main business address and main business telephone number of the registered commodity pool operator, or applicant for such registration, making the request;
§ 4.13 Exemption from registration as a commodity pool operator.
(b)(1) Any person who desires to claim the relief from registration provided by this section, must file electronically a notice of exemption from commodity pool operator registration with the National Futures Association
(4) Each person who has filed a notice of exemption from registration under this section must, in the event that any of the information contained or representations made in the notice becomes inaccurate or incomplete,
§ 4.14 Exemption from registration as a commodity trading advisor.
(a) A Person is not required to register under the Act as a commodity trading advisor if:
(8) It is a registered as an investment adviser under the Investment Advisers Act of 1940 or with the applicable securities regulatory agency of any State, or it is exempt from such registration, or it is excluded from the definition of the term "investment adviser" pursuant to the provisions of section 202(a)(2) and 202(a)(11) of the Investment Advisers Act of 1940, Provided, That:
(iii) (A) A person who desires to claim the relief from registration provided by this §4.14(a)(8) must file electronically a notice of exemption from commodity trading advisor registration with the National Futures Association
(D) Each person who has filed a notice of exemption from registration under this section must, in the event that any of the information contained or representations made in the notice becomes inaccurate or incomplete,
Advisory Number 18-96 Offshore Commodity Pools Relief for Certain Registered CPOs From Rules 4.21, 4.22 and 4.23(a)(10) and (a)(11) and From the Location of Books and Records Requirement of Rule 4.23
C. Filing of a Notice of a Claim for Exemption
(7) Be filed in duplicate with the Commission and the NFA at the headquarters address set forth below:
Commodity Futures Trading Commission
National Futures Association
A notice of a claim for exemption must be filed with the
II. Nature of NFA's Interest
As you know, NFA is a futures association registered under Section 17 of the Commodity Exchange Act. In December 2002, the CFTC authorized NFA to act as the official custodian for all notices of exemption from registration and certain Part 4 requirements that are required to be filed by CPOs and CTAs. NFA is interested in ensuring that these notices of exemption are filed in the most efficient manner. We are also looking to ensure that NFA's database of these exemptions is as complete and accurate as possible. NFA believes that mandatory participation in NFA's electronic exemption filing system furthers these goals.
III. Supporting Arguments
Currently, NFA staff manually inputs and scans all exemptions filed with NFA. NFA staff also manually follows up on any notices of exemption that are not prepared in accordance with the Part 4 requirements. Although this system has worked fairly well, it requires a considerable amount of staffing resources and may be subject to data entry error. NFA believes that a mandatory electronic filing system will result in a more efficient process for those persons claiming an exemption and ensure a more accurate exemption database.
The electronic system is relatively easy to use. Registrants and non-registrants access the electronic filing system through the use of a designated login. Once in the system, registrants and non-registrants will be able to file a notice of exemption by simply selecting the appropriate exemption type and providing the required information. The system will automatically create a printer friendly version of the selected exemption notice for the filer's records. The filer will also be able to view a historical summary of all exemption notices it has filed and update its exemption information at anytime. Further, the system provides assistance to filers through a help text which outlines the specific requirements of the exemption being filed. Although an internet connection is needed to access the system, filers without internet access in their office can use any public internet site, such as those available in most public libraries.
In order to implement NFA's electronic exemption filing system the CFTC must modify its regulations to impose the mandatory filing of exemptions through NFA's electronic exemption filing system and eliminate the manual signature requirement in a number of CFTC regulations. In particular, the CFTC regulations outlined in Section I above require that all notices of exemption filed with NFA include a manual signature by a representative duly authorized to bind the filer. Advisory Number 18-96 requires the signature of the commodity pool operator and also requires that the claim for exemption be filed with the Commission.1
Eliminating the manual signature requirement will not diminish the protections provided by this signature. Authentication will be required to gain access to the electronic exemption filing system. Registrants will use the same authentication model they currently use for ORS and will therefore be familiar with the login procedure. A new form-based authentication model has been developed for non-registrant authentication. This authentication process must be completed before NFA issues a login id to a non-registrant. NFA has taken great care in the development of this process in order to ensure that the database of exemption notice filings will not be compromised in any way by unauthorized persons.
NFA respectfully petitions the Commission to amend Regulations 4.5, 4.7, 4.12, 4.13, 4.14, and Advisory Number 18-96 as outlined above.
NFA's electronic exemption filing system is currently capable of accepting notices and amendments. Therefore, NFA respectfully requests that during the time period the Commission is considering the proposed amendments, the Commission provide CPOs and CTAs who wish to avail themselves of the system relief from the pertinent requirements of 4.5, 4.7, 4.12, 4.13, 4.14 and Advisory Number 18-96.
Very truly yours,
1 NFA recognizes that the Commission eliminated the filing requirement with the Commission when it authorized NFA to serve as the official custodian of the notices and claims for exemption. (See 67 Fed. Reg. 77470 at 77472, December 18, 2002). However, for clarity purposes, NFA requests that the Commission amend the language of the Advisory to reflect that this requirement has been eliminated.