Commodity Pool Operators, Commodity Trading Advisors, and Commodity Pools Operated: Updating the `Qualified Eligible Person' Definition; Adding Minimum Disclosure Requirements for Pools and Trading Programs; Permitting Monthly Account Statements for Funds of Funds; Technical Amendments

<RULE> COMMODITY FUTURES TRADING COMMISSION <CFR>17 CFR Parts 1, 3, 4, 30, 43, and 75</CFR> <RIN>RIN 3038-AF25</RIN> <SUBJECT>Commodity Pool Operators, Commodity Trading Advisors, and Commodity Pools Operated: Updating the `Qualified Eligible Person' Definition; Adding Minimum Disclosure Requirements for Pools and Trading Programs; Permitting Monthly Account Statements for Funds of Funds; Technical Amendments</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Commodity Futures Trading Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Commodity Futures Trading Commission (Commission or CFTC) is adopting amendments to certain provisions of its regulations (the Final Rule) that would update the Portfolio Requirement thresholds within the “Qualified Eligible Person” definition; include revisions that are consistent with long-standing Commission exemptive letters addressing the timing of certain pools' periodic financial reporting; and make several technical amendments related to the structure of the regulations that are the subject of this Final Rule. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> This rule is effective November 25, 2024. <E T="03">Compliance date:</E> Commodity pool operators (CPOs) and commodity trading advisors (CTAs) must comply with the increased Portfolio Requirement thresholds in Commission regulation § 4.7(a) by March 26, 2025. The optional monthly account statement reporting schedule for certain § 4.7 pools in Commission regulation § 4.7(b)(3)(iv) is available to CPOs as of the effective date, and compliance is required upon election of that schedule by the CPO. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Amanda L. Olear, Director, 202-418-5283 or <E T="03">aolear@cftc.gov;</E> Pamela M. Geraghty, Acting Deputy Director, 202-418-5634 or <E T="03">pgeraghty@cftc.gov;</E> Elizabeth Groover, Acting Associate Director, 202-418-5985 or <E T="03">egroover@cftc.gov;</E> or Andrew Ruggiero, Special Counsel, 202-418-5712 or <E T="03">aruggiero@cftc.gov;</E> each in the Market Participants Division at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction and Background</FP> <FP SOURCE="FP-2">II. The Final Rule</FP> <FP SOURCE="FP1-2">A. General Overview of Comments Received</FP> <FP SOURCE="FP1-2">B. Minimum QEP Disclosure Requirements Under Commission Regulation § 4.7</FP> <FP SOURCE="FP1-2">C. Updating Financial Thresholds in the Portfolio Requirement of the “Qualified Eligible Person” Definition</FP> <FP SOURCE="FP1-2">D. Permitting Monthly Account Statements for Certain 4.7 Pools Consistent With Commission Exemptive Letters</FP> <FP SOURCE="FP1-2">E. Other Technical Amendments</FP> <FP SOURCE="FP1-2">F. Effective and Compliance Dates for the Final Rule</FP> <FP SOURCE="FP-2">III. Related Matters</FP> <FP SOURCE="FP1-2">A. Regulatory Flexibility Act</FP> <FP SOURCE="FP1-2">B. Paperwork Reduction Act</FP> <FP SOURCE="FP1-2">C. Cost-Benefit Considerations</FP> <FP SOURCE="FP1-2">D. Antitrust Considerations</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction and Background</HD> As amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), <SU>1</SU> <FTREF/> section 1a(11) of the Commodity Exchange Act (CEA or Act) defines the term “commodity pool operator” as any person engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, with respect to that commodity pool, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests. <SU>2</SU> <FTREF/> CEA section 1a(10) defines a “commodity pool” as any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests. <SU>3</SU> <FTREF/> CEA section 1a(12) defines the term “commodity trading advisor” as any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writing, or electronic media, as to the value of or the advisability of trading in commodity interests. <SU>4</SU> <FTREF/> <FTNT> <SU>1</SU>  Public Law 111-203, 124 Stat. 1376 (2010). </FTNT> <FTNT> <SU>2</SU>  7 U.S.C. 1a(11). </FTNT> <FTNT> <SU>3</SU>  7 U.S.C. 1a(10). </FTNT> <FTNT> <SU>4</SU>  7 U.S.C. 1a(12). </FTNT> Generally, CEA section 4m(1) requires each person whose activities satisfy either the CPO or CTA definition to register as such with the CFTC. <SU>5</SU> <FTREF/> With respect to both CPOs and CTAs, the CEA also authorizes the Commission to include persons within, or exclude them from, such definitions, by rule, regulation, or order, if the Commission determines that such action will effectuate the purposes of the CEA. <SU>6</SU> <FTREF/> In addition to the general registration authority set forth in CEA section 4m(1), CEA section 4n specifically empowers the Commission to impose compliance obligations related to the registration process, recordkeeping, disclosure, and reporting. <SU>7</SU> <FTREF/> Finally, the CEA also gives the Commission authority to make and promulgate such rules and regulations, as in the judgment of the Commission, are reasonably necessary to effectuate the provisions or to accomplish any purposes of the CEA. <SU>8</SU> <FTREF/> <FTNT> <SU>5</SU>  7 U.S.C. 6m(1) (It shall be unlawful for any CTA or CPO, unless registered under this chapter, to make use of the mails or any means or instrumentality of interstate commerce with his business as such CTA or CPO). <E T="03">See also</E> 17 CFR 3.10. </FTNT> <FTNT> <SU>6</SU>  7 U.S.C. 1a(11)(B); 7 U.S.C. 1a(12)(B)-(C). </FTNT> <FTNT> <SU>7</SU>  7 U.S.C. 6n. </FTNT> <FTNT> <SU>8</SU>  7 U.S.C. 8a(5). </FTNT> Part 4 of the Commission's regulations specifically governs the operations and activities of CPOs and CTAs. <SU>9</SU> <FTREF/> These regulations establish registration exemptions and definitional exclusions for CPOs and CTAs, <SU>10</SU> <FTREF/> and contain detailed regulations that establish the ongoing compliance obligations applicable to registered CPOs and CTAs, which implement the statutory authority granted to the Commission by the CEA with respect to such registrants. <SU>11</SU> <FTREF/> Specifically, the regulatory compliance requirements facilitate the Commission's oversight of their activities in the commodity interest markets and promote customer protection through operational requirements, to a registrant's pool participants or advisory clients. Commission regulation § 4.7 provides exemptions from certain part 4 compliance requirements regarding disclosure, periodic reporting, and recordkeeping for registered CPOs and CTAs, whose prospective and actual pool participants and/or advisory clients are restricted to individuals and entities considered “Qualified Eligible Persons,” and who claim the desired exemptions, pursuant to paragraph (d) of that section. <SU>15</SU> <FTREF/> Since its adoption over thirty years ago, the Commission has occasionally amended Commission regulation § 4.7 to enhance its usability and ensure that it remains fit for purpose. <SU>16</SU> <FTREF/> <FTNT> <SU>9</SU>  17 CFR part 4. </FTNT> <FTNT> <SU>10</SU>   <E T="03">See</E> 7 U.S.C. 6n; 17 CFR 4.5, 4.6, 4.13, 4.14. </FTNT> <FTNT> <SU>11</SU>   <E T="03">See, generally,</E> 17 CFR 4.20 through 4.26, 4.30 through 4.36. </FTNT> <FTNT> <SU>12</SU>   <E T="03">See, e.g.,</E> 17 CFR 4.20(c), 4.30(a) (prohibiting the commingling of pool funds with those of any other person and prohibiting CTAs from accepting funds from advisory clients in the CTA's name, respectively). </FTNT> <FTNT> <SU>13</SU>  17 CFR 4.24, 4.25, 4.34, 4.35. </FTNT> <FTNT> <SU>14</SU>  17 CFR 4.22. </FTNT> <FTNT> <SU>15</SU>  17 CFR 4.7. </FTNT> <FTNT> <SU>16</SU>   <E T="03">See, e.g.,</E> 77 FR 11252 (Feb. 24, 2012) (rescinding the relief from the audit requirement for pool annual reports previously provided under Commission regulation § 4.7(b)(4)); 84 FR 67355 (Dec. 10, 2019). </FTNT> After a careful review of the existing language and structure of Commission regulation § 4.7, and considering the public and regulatory interest of maintaining and modernizing older, but still widely utilized provisions, the Commission approved and published in the <E T="04">Federal Register</E> a notice of proposed rulemaking (NPRM or Proposal) comprised of targeted amendments to update the regulation in several ways. <SU>17</SU> <FTREF/> The Commission noted in the NPRM that, as of the end of FY 2022, 837 registered CPOs operated approximately 4,304 commodity pools pursuant to claimed Commission regulation § 4.7 exemptions (§ 4.7 pools, and together with CTA programs operated under Commission regulation § 4.7, the § 4.7 pools and trading programs). <SU>18</SU> <FTREF/> Relatedly, approximately 865 CTAs claim an exemption under Commission regulation § 4.7 for their trading programs, which the Commission also estimates to number in the tens of thousands. The Commission further stated that, during discussions with CFTC staff, the National Futures Association (NFA), the registered futures association to whom the Commission has delegated many of its regulatory oversight functions with respect to CPOs and CTAs, predicted that this population of CPOs, CTAs, commodity pools, and trading programs o ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 177k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━