Amendments to Compliance Requirements for Commodity Pool Operators on Form CPO-PQR
| Published date | 04 May 2020 |
| Citation | 85 FR 26378 |
| Record Number | 2020-08496 |
| Section | Proposed rules |
| Court | Commodity Futures Trading Commission |
Federal Register, Volume 85 Issue 86 (Monday, May 4, 2020)
[Federal Register Volume 85, Number 86 (Monday, May 4, 2020)]
[Proposed Rules]
[Pages 26378-26413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08496]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AE98
Amendments to Compliance Requirements for Commodity Pool
Operators on Form CPO-PQR
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)
is proposing amendments to agency regulations on Commodity Pool
Operators. Specifically, the proposal would eliminate the pool-specific
reporting requirements in existing Schedules B and C of Form CPO-PQR,
other than the pool schedule of investments, and amend the information
in existing Schedule A of the form to request Legal Entity Identifiers
(LEIs) for commodity pool operators (CPOs) and their operated pools
that have them, and to eliminate questions regarding pool auditors and
marketers. All CPOs would be required to file the resulting amended
Form CPO-PQR quarterly, but would also be allowed to file NFA Form PQR,
a comparable form required by the National Futures Association (NFA),
in lieu of filing the revised Form CPO-PQR. Relatedly, the Commission
would also no longer accept filing Form PF in lieu of the revised Form
CPO-PQR. The Commission preliminarily believes that these amendments
would focus Form CPO-PQR on data elements that facilitate the
Commission's oversight of CPOs and their pools in connection with its
use of other Commission data streams and regulatory initiatives while
reducing overall data collection requirements for market participants.
DATES: Comments must be received on or before June 15, 2020.
ADDRESSES: You may submit comments, identified by RIN number 3038-AE98,
by any of the following methods:
CFTC Comments Portal: https://comments.cftc.gov. Select
the ``Submit Comments'' link for this rulemaking and follow the
instructions on the Public Comment Form.
Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instructions as for
Mail, above.
Please submit your comments using only one of these methods.
Submissions through the CFTC Comments Portal are encouraged.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://comments.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (FOIA), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in Commission Regulation 145.9.\1\
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\1\ 17 CFR 145.9. The Commission's regulations are found at 17
CFR Ch. I (2019).
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it
[[Page 26379]]
may deem to be inappropriate for publication, such as obscene language.
All submissions that have been redacted or removed that contain
comments on the merits of the rulemaking will be retained in the public
comment file and will be considered as required under the
Administrative Procedure Act and other applicable laws, and may be
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accessible under the FOIA.
FOR FURTHER INFORMATION CONTACT: Joshua B. Sterling, Director, at 202-
418-6700 or [email protected]; Amanda Lesher Olear, Deputy Director,
at 202-418-5283 or [email protected]; Division of Swap Dealer and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
Section 1a(11) of the Commodity Exchange Act (CEA or the Act) \2\
defines the term ``commodity pool operator'' (CPO), as any person \3\
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.\4\ CEA
section 4m generally requires each person who satisfies the CPO
definition to register as such with the Commission.\5\ CEA section 4n
requires registered CPOs to maintain books and records and file such
reports in such form and manner as may be prescribed by the
Commission.\6\
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\2\ 7 U.S.C. 1, et seq. (2019). The Act is accessible through
the Commission's website, https://www.cftc.gov.
\3\ See 17 CFR 1.3 (defining ``person'' to include individuals,
associations, partnerships, corporations, and trusts).
\4\ 7 U.S.C. 1a(11).
\5\ 7 U.S.C. 6m(1).
\6\ 7 U.S.C. 6n(3)(A). Registered CPOs have regulatory reporting
obligations with respect to their operated pools. See 17 CFR. 4.22.
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In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act) \7\ amended the Investment Advisers Act of 1940
(Advisers Act) \8\ to require advisers to large private funds \9\ to
register with the Securities and Exchange Commission. (SEC).\10\
Congress further directed the SEC to adopt rules requiring registered
private fund advisers \11\ to file reports containing such information
as is deemed necessary and appropriate in the public interest and for
investor protection and for the assessment of systemic risk.\12\
Pursuant to section 204 of the Advisers Act, as amended, those records
and reports must include, among other things, a description of the
amount of assets under management, use of leverage, counterparty credit
risk exposure, and trading and investment positions for each private
fund advised by the adviser.\13\ These records and reports must also be
made available to the Financial Stability Oversight Counsel (FSOC).\14\
Through these requirements, Congress sought to make available to the
SEC and FSOC information regarding the size, strategies, and positions
of large private funds, which Congress believed could be crucial to
regulatory attempts to deal with a future crisis.\15\
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\7\ Public Law 111-203, 124 Stat. 1376 (2010).
\8\ 15 U.S.C. 80b-1 et seq. (2019).
\9\ Section 202(a)(29) of the Advisers Act defines the term
``private fund'' as ``an issuer that would be an investment company,
as defined in section 3 of the Investment Company Act of 1940 (15
U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act.'' See
15 U.S.C. 80ab-2(a)(29).
\10\ See Dodd-Frank Act section 403 of the (amending Advisers
Act 203(b), 15 U.S.C. 80b-3(b), to incorporate private fund adviser
registration); Dodd-Frank Act sections 402, 407, 408 (establishing
certain exemptions from private fund adviser registration); Advisers
Act section 202(a)(29), 15 U.S.C. 80a-3 (defining ``private fund'').
\11\ As used in this release, the term ``private fund adviser''
refers to any investment adviser that is: (i) Registered or required
to be registered with the SEC (including any investment adviser that
is also registered or required to be registered with the CFTC as a
CPO or CTA); and (ii) advises one or more private funds (including
any commodity pools that satisfy the definition of ``private
fund'').
\12\ See Dodd-Frank Act section 404; Advisers Act section 204,
15 U.S.C. 80b-4(b)(5). See also 15 U.S.C. 80b-4(b)(1) (authorizing
the SEC to require each investment adviser to a private fund to file
reports containing such information as the SEC deems necessary and
appropriate in the public interest or for the protection of
investors or for the assessment of systemic risk by the Financial
Stability Oversight Council).
\13\ 15 U.S.C. 80b-4(b)(3).
\14\ 15 U.S.C. 80b-4(b)(7).
\15\ Commodity Pool Operators and Commodity Trading Advisors:
Amendments to Compliance Obligations, 76 FR 7976, 7977 (Form CPO-PQR
Proposal) (Feb. 11, 2011) (citing S. Conf. Rep. No. 111-176, at 38
(2010)).
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Pursuant to Advisers Act section 211, as amended, rules
establishing the form and content of reports filed by private fund
advisers that are dually registered with the SEC and the CFTC
(together, the Commissions) must be promulgated jointly by both
agencies after consultation with FSOC.\16\ Accordingly, in 2011 the
Commissions jointly adopted sections 1 and 2 of Form PF.\17\ In
adopting Form PF, the Commissions stated that the form was designed to
provide FSOC empirical data from which it may make a determination
about the extent to which the activities of private funds or their
advisers pose systemic risk.\18\ The SEC added that the policy
judgements implicit in the Form PF reporting requirements reflected
FSOC's role as the primary user of the reported information and that
the SEC would not necessarily have required the same scope of reporting
if the information reported on Form PF were intended solely for the
SEC's use.\19\
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\16\ 15 U.S.C. 80b-11(e).
\17\ See Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, 76 FR 71128 (Nov. 16, 2011) (Form PF Final Rule). Sections
3 and 4 of Form PF were adopted solely by the SEC. Id.
\18\ Id. at 71129.
\19\ Id. at 71129-30.
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Following the adoption of Form PF, and on its own initiative, the
Commission adopted its own new reporting requirement for CPOs: Form
CPO-PQR and Sec. 4.27, which requires certain CPOs to report on Form
CPO-PQR.\20\ The Commission proposed this new reporting requirement
after reevaluating its regulatory approach to CPOs in light of the 2008
financial crisis and the purposes and goals of the Dodd-Frank Act so as
to determine the necessary level of regulation in the then-current
economic environment. The amendments to Part 4, including this new
reporting requirement, were intended to: (1) Align the Commission's
regulatory structure for CPOs with the purposes of the Dodd-Frank Act;
(2) encourage more congruent and consistent regulation of similarly
situated entities among Federal financial regulatory agencies, such as
dually registered CPOs required to file Form PF; (3) improve
accountability and increase transparency of the activities of CPOs and
the commodity pools that they operate or advise; and (4) facilitate a
data collection that would potentially assist FSOC.\21\ To that end,
the requirements of Form CPO-PQR were modeled closely after those of
Form PF.\22\
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\20\ See Commodity Pool Operators and Commodity Trading
Advisors: Compliance Obligations, 77 FR 11252 (Feb. 24, 2012) (Form
CPO-PQR Final Rule); 17 CFR pt. 4 app. A; 17 CFR 4.27.
\21\ Form CPO-PQR Proposal, 76 FR at 7978.
\22\ Id. at 7978 (``The Commission proposes [Form CPO-PQR] to
solicit information that is generally identical to that sought
through Form PF . . .''). Section 4.27 further provides for the
filing of Form PF in lieu of Commission filing requirements (i.e.,
Form CPO-PQR) for CPOs that are dually registered with the SEC. See
17 CFR 4.27(d).
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In adopting Form CPO-PQR, the Commission indicated that the
collected data would be used for several broad purposes, including:
Increasing the Commission's understanding of its registrant population;
assessing the market risk associated with pooled
[[Page 26380]]
investment vehicles under its jurisdiction; and monitoring for systemic
risk.\23\ Specifically, the Commission was interested in receiving
information regarding the operations of CPOs and their pools, including
their participation in commodity interest markets, their relationships
with intermediaries, and their interconnectedness with the financial
system at large.\24\ In proposing the majority of the more pool-
specific questions in the form in particular, the Commission believed
the incoming data would assist the Commission in monitoring commodity
pools in such a way as to allow the Commission to identify trends over
time, including a pool's exposure to asset classes, the composition and
liquidity of a commodity pool's portfolio, and a pool's susceptibility
to failure in times of stress.\25\ Although the Commission recognized
that the data had some limitations, it believed that, in light of the
2008 financial crisis and the sources of risk delineated in the Dodd-
Frank Act with respect to private funds, the detailed, pool-specific
information to be provided in Form CPO-PQR was necessary and
appropriately balanced to assess the risks posed by a pool or a CPO's
operations as a whole.\26\
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\23\ See Form CPO-PQR Final Rule, 77 FR 11252.
\24\ Id. at 11266.
\25\ Form CPO-PQR Proposal, 76 FR at 7981.
\26\ Id.
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After seven years of experience with Form CPO-PQR, the Commission
is reassessing the scope of Form CPO-PQR and how it aligns with the
Commission's current regulatory priorities. The Commission's ability to
make full use of the more detailed information collected under Form
CPO-PQR has not met the Commission's initial expectations. At the same
time, however, the Commission has devoted substantial resources to
developing other data streams and regulatory initiatives designed to
enhance its ability to broadly surveil financial markets for risk posed
by all manner of market participants, including CPOs and their operated
pools.
Under these circumstances, and as further explained in discussion
that follows, the Commission preliminarily believes that Form CPO-PQR
could be revised in a way that would support the Commission's ability
to exercise its oversight of CPOs and their operated pools while
reducing reporting burdens for market participants, thereby further
promoting the integrity, resilience, and vibrancy of the U.S.
derivatives markets.
II. Overview of Current Form CPO-PQR
The amount of information that a CPO is currently required to
disclose on Form CPO-PQR varies depending on the size of the operator
and the size of the operated pools.\27\ The form identifies three
classes of filers: Large CPOs, Mid-Sized CPOs, and Small CPOs. The
thresholds for determining Large and Mid-Sized CPOs generally align
with those in Form PF: \28\ A Large CPO is a CPO that had at least $1.5
billion in aggregated pool assets under management (AUM) \29\ as of the
close of business on any day during the reporting period; a Mid-Sized
CPO is a CPO that had at least $150 million, but less than $1.5
billion, in aggregated pool AUM as of the close of business on any day
during the reporting period. Although not defined in Form CPO-PQR,
``Small CPO,'' as used herein, refers to a CPO that is not a Large CPO
or a Mid-Sized CPO, i.e., a CPO that had less than $150 million in
aggregated pool AUM during the entire reporting period. The reporting
period for Large CPOs is any of the individual calendar quarters
(ending March 31, June 30, September 30, and December 31); for Small
and Mid-Sized CPOs, the reporting period is the calendar year-end.
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\27\ See 17 CFR pt. 4 app. A.
\28\ See Instructions to Form PF, available at http://www.sec.gov/about/forms/formpf.pdf. Private fund investment advisers
with ``regulatory AUM,'' as that term is defined in Form PF, of at
least $150 million are required to file Section 1 of Form PF;
private fund investment advisers with regulatory AUM equal to or
exceeding $1.5 billion are required to file Sections 1 and 2 of Form
PF. Id.
\29\ AUM refers to the amount of all assets that are under the
control of the CPO. See 17 CFR pt. 4 app. A.
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Form CPO-PQR consists of three schedules: Schedules A, B, and C.
Schedule A requires all CPOs to disclose basic identifying information
about the CPO (Part 1) and about each of the CPO's pools and the
service providers they used (Part 2). Large CPOs submit Schedule A on a
quarterly basis; all other CPOs submit it annually. Schedule B requires
additional detailed information for each pool operated by Mid-Sized and
Large CPOs regarding each pool's investment strategy; borrowings and
types of creditors; counterparty credit exposure; trading and clearing
mechanisms; value of aggregated derivative positions; and a schedule of
investments. Large CPOs submit Schedule B on a quarterly basis, whereas
Mid-Sized CPOs submit it annually.
Schedule C requires further detailed information about the pools
operated by Large CPOs on an aggregate and pool-by-pool basis. Part 1
of Schedule C requires aggregate information for all pools operated by
a Large CPO, including (1) a geographical breakdown of the pools'
investment on an aggregated basis and (2) the turnover rate of
aggregate portfolio of pools. Part 2 of Schedule C requires certain
detailed information for each Large Pool the Large CPO operates, where
a ``Large Pool'' is defined as a commodity pool that has a net asset
value (NAV) \30\ individually, or in combination with any parallel pool
structure,\31\ of at least $500 million as of the close of business on
any day during the reporting period.\32\ Specifically, Part 2 requires
information with respect to each Large Pool the Large CPO operates
during the given reporting period, including information regarding the
Large Pool's: (1) Identity; (2) liquidity; (3) counterparty credit
exposure; (4) risk metrics; (5) borrowing; (6) derivative positions and
posted collateral; (7) financing liquidity; (8) participant
information; and (9) the duration of its fixed income assets. Large
CPOs submit Schedule C on a quarterly basis and a separate Part 2 of
Schedule C on a quarterly basis for each Large Pool they operate during
the reporting period.
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\30\ The term ``net asset value'' has the same meaning as in
Commission regulation at Sec. 4.10(b). See id.
\31\ The term ``parallel pool structure'' means any structure in
which one or more pools pursues substantially the same investment
objective and strategy and invests side by side in substantially the
same assets as another pool. See id.
\32\ Id.
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If a CPO is dually registered with the SEC as an Investment Adviser
and is required to file Form PF regarding its advisory services to
private funds \33\ during the reporting period, the CPO is deemed to
have satisfied its Schedule B and Schedule C filing requirements by
completing and filing certain questions in Form PF.\34\
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\33\ The term ``private fund'' has the same meaning as the
definition of ``private fund'' in Form PF. 17 CFR pt. 4, app. A.
\34\ See id.
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In addition to Form PF and Form CPO-PQR, in 2010 NFA implemented
its form PQR (NFA Form PQR) to elicit data in support of a risk-based
examination program for CPOs.\35\ Pursuant to NFA Rule 2-46, all CPO
NFA members, which include all CPOs registered with the Commission,
must file NFA Form PQR on a quarterly basis.\36\ By rule, NFA accepts
the filing of Form CPO-PQR, but not Form PF, in lieu of filing its form
for any quarter in which a Form CPO-PQR filing is
[[Page 26381]]
required under Sec. 4.27. As such, dually-registered CPOs that file
Form PF in lieu of a Form CPO-PQR filing are currently required to file
NFA Form PQR with NFA quarterly.
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\35\ NFA Rule 2-46 (2010).
\36\ Id. All registered CPOs are required to be NFA members
pursuant to 17 CFR 170.17.
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III. Proposed Regulations
As indicated above, the Commission is proposing amendments to Form
CPO-PQR that would reduce the amount of reporting required thereunder
while still supporting the Commission's ability to oversee the
activities of CPOs and their operated pools. Specifically, the proposal
would eliminate the pool-specific information currently required to be
reported in Schedules B or C of the form, with the exception of the
pool schedule of investments (question 6 of Schedule B). The
information required in current Schedule A would remain with a few
amendments, notably the addition of questions regarding LEIs. The
retained reporting requirements--the reporting requirements in current
Schedule A, as proposed to be amended, plus the schedule of investments
from Schedule B--would be combined to form the entirety of Form CPO-
PQR, referred to herein as ``Revised Form CPO-PQR.'' The proposal would
require all CPOs to file Revised Form CPO-PQR on a quarterly basis, but
would permit CPOs to file a comparable form required by NFA, NFA Form
PQR, in lieu of Revised Form CPO-PQR. As a corollary, the Commission
would also revise Sec. 4.27(d) to eliminate the ability of dually
regulated CPOs that are required to file Form PF with respect to one or
more of their operated private funds to file Form PF in lieu of filing
current Form CPO-PQR, while retaining Form PF as the Commission's form.
The sections that follow explain these proposed changes in further
detail.
A. Elimination of Pool-Specific Reporting Requirements in Schedules B
and C
As mentioned above, the Commission is proposing to eliminate the
majority of the information required to be reported in current
Schedules B and C of Form CPO-PQR. The eliminated data elements include
detailed, pool-specific information, provided on both the individual
and aggregate level, such as questions about investment strategy and
counterparty credit exposure, asset liquidity and concentration of
positions, clearing relationships, risk metrics, financing, and
investor composition.
In adopting Form CPO-PQR, the Commission was interested in
receiving information regarding the operations of CPOs and their
operated pools, including their participation in commodity interest
markets, their relationships with intermediaries, and their
interconnectedness with the financial system at large.\37\ In proposing
the majority of the elements in Schedules B and C in particular, the
Commission believed they would assist the Commission in monitoring
commodity pools in such a way as to allow the Commission to identify
trends over time, including a pool's exposure to asset classes, the
composition and liquidity of a commodity pool's portfolio, and a pool's
susceptibility to failure in times of stress.\38\
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\37\ Form CPO-PQR Final Rule, 77 FR at 11266.
\38\ Form CPO-PQR Proposal, 76 FR at 7981.
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After seven years of experience with Form CPO-PQR, however, the
Commission acknowledges that challenges with the data collected in
Schedules B and C, combined with resource constraints in the face of
broader Commission priorities, have frustrated the Commission's ability
to fully realize that vision. To begin, in an effort to take into
account the different ways CPOs maintain information, the Commission
allowed CPOs flexibility in how they calculated and presented certain
of the data elements.\39\ For example, Form CPO-PQR gives Large CPOs
the option of reporting the duration, weighted average tenor, or 10-
year equivalents of fixed income portfolio holdings, understanding that
Large CPOs may use a wide range of metrics to measure interest rate
sensitivity. As a result, the Commission's ability to identify trends
across CPOs or pools using Form CPO-PQR data has been substantially
challenged.
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\39\ Form CPO-PQR Final Rule, 77 FR at 11271.
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Additionally, taking into account the volume and complexity of the
data it was requesting, the Commission determined not to require the
data to be provided in real-time but rather only mandated post hoc
quarterly or annual filings. The Commission acknowledged the
limitations of this filing schedule at the time but also recognized the
time it would take to produce the requested information and concluded
that Form CPO-PQR struck an appropriate balance in addressing the
Commission's need for timely information and providing CPOs sufficient
time to prepare it.\40\ As the Commission has reviewed the data over
the years, however, it has become apparent that the infrequent and
delayed nature of such reporting has made it difficult to assess the
impact of CPOs and their operated pools on markets as conditions and
that relative CPO risk profiles may have changed, potentially
significantly, by the time Form CPO PQR is filed with the Commission.
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\40\ Id. at 11267.
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Part of the Commission's rationale for promulgating Schedules B and
C was a need for additional information about CPOs that are non-dual
registrants to ``identify significant risk to the stability of the
derivatives market and the financial market as a whole.'' \41\ In
making the assessment that the information then available about the
operations of CPOs and their operated firms was insufficient, the
Commission focused primarily on the limited data that it received under
other provisions of Part 4, such as the annual pool financial
statements under Sec. 4.22, which it believed was not well suited for
the stated purpose of identifying risk to the either stability of the
derivatives markets or the financial markets in general.\42\ Moreover,
the Commission did not at the time believe that it had the capability
to use that information to assess the relationship between a large
position held by a pool and the rest of the pool's other derivatives
positions and securities investments.\43\
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\41\ Id. at 11266.
\42\ Form CPO-PQR Proposed Rule, 76 FR at 7978 (``The
information that the Commission currently receives is limited, not
designed to measure systemic or market risk in any meaningful way,
and is only submitted by registered CPOs on an annual basis.'').
\43\ Form CPO-PQR Final Rule, 77 FR at 11268.
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However, in the ten years since the Dodd-Frank Act was passed, the
Commission has devoted significant resources to regulatory initiatives
and data streams designed to enhance the Commission's ability to
broadly surveil financial markets for risk posed by all manner of
market participants, including CPOs. These data streams include
extensive information related to trading, reporting, and clearing of
swaps. Notably, the Commission has developed a regime requiring the
reporting of detailed swap transaction information to swap data
repositories (SDRs), including for those transactions entered into by
CPOs and the pools they operate.\44\ Specifically, swap transaction
data related to both over-the-counter and exchange traded swaps is
required to be reported to SDRs,\45\ and consequently, swaps entered
into by CPOs and pools, whether on an exchange or over-the-counter, are
reported to SDRs and included in the data set that Commission staff can
use to conduct broader market surveillance.
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\44\ See 17 CFR pts. 45; App. 1 to pt. 45, 49.
\45\ 17 CFR pt. 45.
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The Commission has also maintained, and in some instances enhanced,
its daily reporting regime for derivatives clearing organizations
(DCOs), clearing
[[Page 26382]]
members, designated contract markets (DCMs), futures commission
merchants (FCMs), swap dealers, and large traders. Commission
regulations require DCOs to make extensive daily reports, containing
information on the positions and activities of clearing members and
customers, including commodity pools, to the Commission.\46\ Commission
regulations also require reporting by clearing members and large
traders themselves.\47\ Through this data, the Commission can analyze
positions and risks at the DCO, clearing member, or customer level,
including customer positions at more than one clearing member, and
clearing member positions at more than one DCO.
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\46\ 17 CFR 39.19.
\47\ 17 CFR pt. 18.
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The Commission's risk surveillance program focuses on identifying,
quantifying, and monitoring the risks to the financial system posed by
DCOs, clearing participants, and other market participants--including
CPOs and their operated pools. To this end, on a daily basis,
Commission staff work to: (1) Identify positions in cleared products
that pose significant financial risk; and (2) confirm that these risks
are being appropriately managed. Staff undertakes these tasks at the
customer level, the firm level, and the DCO level. That is, staff
identifies both the customers that pose risks to clearing members and
clearing members that pose risks to DCOs.
Importantly, most of the transaction and position information the
Commission uses for its surveillance activities is available on a more
timely and frequent basis than the data received on the current
iteration of Form CPO-PQR. Furthermore, Commission programs to conduct
surveillance of exchanges, FCMs, and DCOs already include CPOs and do
not rely on the information contained in Schedules B and C of Form CPO-
PQR.
Taken together, these efforts have enhanced the Commission's
ability to broadly and actively surveil financial markets, including
with respect to the activities of CPOs and the pools they operate. In
general, the Commission's alternate data streams provide a more timely,
standardized, and reliable view into relevant market activity than that
provided under Form CPO-PQR, which make them much easier to combine
into a holistic surveillance program. Although none of the Commission's
current data streams offers a substitute for the more detailed, pool-
specific type of information set forth in Schedules B and C of Form
CPO-PQR, the Commission preliminarily believes that, taking into
account the Commission's current priorities and resource
availabilities, a Revised Form CPO-PQR that could be more easily
integrated with these existing and more developed data streams would
enable the Commission, with some additional data analysis, to oversee
and assess the impact of CPOs and their operated pools in the commodity
interest markets in an effective manner. The inclusion of the LEIs for
the CPO and its operated pools, as explained more fully below, would be
key to helping facilitate this integration with respect to CPOs and
pools that engage in the swaps markets. The Commission also
preliminarily believes that this improved data integration would
mitigate the need to engage in a more extensive, and likely more
burdensome, effort to improve the utility of the data fields requested
in current Schedules B and C.
The Commission notes that more than half of the largest CPOs and
pools are captured within the statutory definitions of private fund
investment advisers and private funds and as such are required to
report on Form PF.\48\ Other large asset managers that are registered
as CPOs and file Form CPO-PQR are sponsors or advisers to investment
companies registered under the Investment Company Act of 1940,\49\
which, by definition, are not private funds.\50\ Many of those
registered investment companies are also commodity pools that trade
commodity interests to a meaningful degree as part of their investment
strategies; as a result, those investment companies' principal
investment advisers have registered with the Commission as CPOs.\51\
Registered investment companies are subject to a comprehensive scheme
of periodic financial reporting under the federal securities laws, and
most of that data is publicly available on the SEC's website through
its EDGAR filing system.\52\ In addition, all CPOs file annual
certified financial statements for their commodity pools with NFA
pursuant to the Commission's regulations.\53\ NFA reviews the
information in commodity pool annual certified financial statements,
uses it as an input for determining the frequency and scope of its
examinations of CPOs in combination with the data that it collects on
its NFA Form PQR, and communicates frequently with Commission staff
regarding its examination of CPOs, as informed by its review of such
financial statements and data filings.
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\48\ Based on the data received for the reporting period of
September 30, 2017, for example, eight out of the ten largest CPOs
filed Form PF in lieu of Form CPO-PQR.
\49\ 15 U.S.C. 80a-1, et seq.
\50\ 15 U.S.C. 80b-2(29).
\51\ 17 CFR 4.5(c); 17 CFR 4.12(c).
\52\ For instance, registered management investment companies--a
category that includes those investment companies that are also
commodity pools--file with the SEC annual reports on Form N-CEN,
quarterly reports of their portfolio holdings on Form N-PORT, and
information about their liquidity on Form N-LIQUID. Management
investment companies that are regulated as money market funds are
subject to different reporting, as are other registered investment
companies that are organized as unit investment trusts, business
development companies, and face-amount certificate companies.
\53\ 17 CFR 4.7(b); 4.22(c) and (d).
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The Commission acknowledges that a determination to no longer
routinely collect the pool-specific data in Schedules B and C would
result in this information not being readily available to FSOC upon
request, which was part of the Commission's envisioned purpose for Form
CPO-PQR when it was first promulgated. As well, the Commission notes
that many dually registered CPOs currently include commodity pools that
are not private funds in data that they report on Form PF, in lieu of a
filing on Form CPO-PQR for such pools, pursuant to Sec. 4.27(d), and
that if the amendments proposed herein are adopted as final, these CPOs
could decide to stop including these pools in their Form PF filing. The
Commission understands that this could result in less information
relevant to commodity pools being available to FSOC from Form PF.
However, given that FSOC is otherwise provided with comparable data for
the sizeable number of dually registered CPOs via Form PF, the
Commission preliminarily believes FSOC's monitoring should not be
materially affected compared to its current state.
B. Revised Form CPO-PQR
With the proposed elimination of the majority of the data fields
set forth in Schedules B and C of current Form CPO-PQR, the resulting
Revised Form CPO-PQR would consist of the information currently
reported in Schedule A of Form CPO-PQR, with a couple deletions
discussed below; the pool schedule of investments, currently reported
under question 6 of Schedule B; and new questions to solicit LEIs for
each CPO and its operated pools. All CPOs would be required to report
all of this information quarterly, regardless of their AUM. As
intimated above, the Commission preliminarily believes that this
information, when integrated with other data streams available to the
Commission, would provide an effective and efficient way for the
Commission to
[[Page 26383]]
oversee and assess the impact of CPOs and their operated pools in the
commodity interest markets.
Current Schedule A provides the Commission basic identifying
information about the CPO and its operated pools and the service
providers they used, including the custodians and brokers used by the
CPO with respect to some or all of the operated pools' assets and the
pools' monthly rate of return. The Commission preliminarily believes
that this basic, demographic information is useful in providing context
with respect to the more granular information it receives regarding the
positions held by commodity pools from other sources.
At the moment, the data currently collected in Form CPO-PQR cannot
be easily aggregated with other market information that the Commission
collects, and, as such, has not been integrated into the Commission's
market oversight function, which limits its utility to the Commission.
Specifically, the lack of LEI information for CPOs and their operated
pools makes it challenging to align it with the data received from
DCOs, DCMs, SDRs, and FCMs to compile a view into the operations of
CPOs and pools and the various roles such entities inhabit within the
commodity interest markets. The Commission is therefore proposing to
amend Form CPO-PQR to include a question seeking the CPO's and the
operated pools' LEIs, to the extent they have them. The inclusion of
existing LEIs within this smaller data set on Revised Form CPO-PQR
should enable the Commission to more efficiently and accurately
synthesize the various Commission data streams on an entity-by-entity
basis. Furthermore, inclusion of LEIs may permit better use of SDR and
other data to illuminate the risk inherent in pools and pool families.
The Commission also anticipates that the inclusion of LEIs would
greatly facilitate the aggregation of data from commodity pools under
different levels of common control.
Although the Commission is proposing to continue to receive the
majority of the information currently collected in Schedule A of Form
CPO-PQR, it is also proposing to eliminate the questions regarding the
pool's auditors and marketers. The Commission and NFA receive
information regarding the independent certified public accountants that
all CPOs are required to engage to prepare certified annual reports,
including audited financial statements, for their operated commodity
pools through other means, which the Commission preliminarily believes
obviates the need for obtaining this information through Revised Form
CPO-PQR.\54\ With respect to a pool's marketers, staff generally
accesses this information through sources other than Form CPO-PQR, such
as registration records for APs associated with the offered pool's CPO
or through the disclosure document for the pool. For example, persons
soliciting for pool participation units are typically either associated
persons of the CPO \55\ or registered representatives of a broker
dealer.\56\ Such persons are subject to regulation by either the
Commission and NFA, or the SEC and the Financial Industry Regulatory
Authority (FINRA). As such, the Commission preliminarily believes that
it readily has the means to learn who such persons are with respect to
the offering of participation units in a particular commodity pool
without requiring that information to be reported on Form CPO-PQR.
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\54\ 17 CFR 1.16.
\55\ 17 CFR 1.3, associated person; 17 CFR 3.12.
\56\ 17 CFR 3.12(h)(ii).
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At present, most CPOs are only required to submit the information
in Schedule A of Form CPO-PQR on an annual basis; only Large CPOs
submit this information quarterly. In order to fully integrate the
information reported on Revised Form CPO-PQR into the Commission's
ongoing oversight of the derivatives markets and commodity pool
industry, the Commission preliminarily believes that the reporting of
this basic information on a more frequent quarterly basis would be
necessary. The Commission therefore preliminarily believes that
requiring reporting of this basic information on a more frequent
quarterly basis would play an important role in facilitating
Commission's ability to monitor trends in the commodity pool industry.
The pool schedule of investments, currently in Schedule B, provides
the Commission a fairly detailed breakdown of how the pool's
investments are allocated by asset category (cash, equities,
alternative investments, fixed income, derivatives, options, and
funds). Although under the current iteration of Form CPO-PQR only Mid-
Sized and Large CPOs are required to submit any information in Schedule
B, and Mid-Sized CPOs only submit it annually, the Commission
preliminarily believes that obtaining a pool schedule of investment
from all CPOs with respect to their operated pools on a regular,
quarterly basis would assist the Commission in understanding the
composition of a pool's portfolio with a limited, if any, increase in
their filing burden, as the Commission notes that NFA Form PQR
currently requires all CPOs regardless of size to file a pool schedule
of investments each quarter.
C. NFA Form PQR
As proposed, Revised Form CPO-PQR would generally align with NFA
Form PQR. NFA Form PQR was implemented in 2010 to elicit data to
implement NFA's risk-based examination program for CPOs.\57\ The form
requests basic identifying information for CPOs and their operated
pools, and a schedule of investments, and requires all CPOs to report
this information quarterly. As a whole, current NFA Form PQR is
essentially identical to current Schedule A of Form CPO-PQR combined
with the pool of investments question from Schedule B. The Commission
also understands that NFA has plans to include questions regarding LEIs
in NFA Form PQR. If Revised Form CPO-PQR is adopted as proposed, and
NFA's amendments to include LEIs are also finalized, the forms will be
substantively identical. Under those circumstances, the Commission
would permit a CPO to file NFA Form PQR in lieu of Revised Form CPO-
PQR, offering CPOs additional filing efficiencies without compromising
the Commission's ability to obtain affected data.
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\57\ NFA Form PQR assists NFA in assessing risks, identifying
trends, and assigning audit priorities in its oversight of CPOs. See
National Futures Association: CPO Quarterly Reporting Requirements--
Proposed Adoption of Compliance Rule 2-46, https://www.nfa.futures.org/news/PDF/CFTC/CR2_46_CPO_Quarterly_Report_082009.pdf (last visited Dec. 30, 2019).
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As a corollary, the Commission is also proposing to revise Sec.
4.27(d), which currently permits dually regulated CPOs required to file
Form PF with respect to one or more of their operated private funds to
file Form PF in lieu of filing current Form CPO-PQR with respect to any
commodity pools that are not private funds.\58\ The Commission believes
that this provision would be redundant in light of the proposed
provision to accept NFA Form PQR and would frustrate an intended
purpose of this proposed rulemaking, which is to allow the Commission
to enhance the Commission's use of its own internal data streams to
effectuate an efficient and effective oversight program of CPOs and
their operated pools, given that Revised Form CPO-PQR would no longer
be closely aligned in content or filing frequency with Form PF. The
Commission is not, however, proposing to change Form PF's status as the
Commission's form, nor is the Commission proposing to change its
requirement that dually registered CPOs
[[Page 26384]]
and CTAs continue to file Form PF with the SEC.
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\58\ 17 CFR 4.27(d).
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Many dually registered CPOs currently include commodity pools that
are not private funds in data that they report on Form PF, in lieu of a
filing on Form CPO-PQR for such pools, in reliance on Sec. 4.27(d). If
Sec. 4.27(d) is revised to eliminate this option for dually registered
CPOs, the Commission understands that some or even all dually
registered CPOs that currently file Form PF in lieu of Schedules B and/
or C of current Form CPO-PQR for their non-private fund pools could
cease to include such non-private fund pools in their Form PF filings,
resulting in a reduced data set collected on Form PF as compared to the
status quo. The Commission preliminarily believes, however, that this
loss of data to the SEC and FSOC would not meaningfully impact the
efficacy and intent of Form PF in furthering the oversight of the
private fund industry, given that it would only result in the loss of
data on Form PF with respect to non-private fund pools.\59\
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\59\ Form CPO-PQR Final Rule, 77 FR at 11281 (``[T]o mitigate
reporting costs to regulated entities that may be registered with
both the Commission and with the SEC, the regulations have been
modified to allow dually registered entities to file on [F]orm PF
(plus the first schedule A of [F]orm CPO-PQR) for all of their
commodity pools, even those that are not `private funds.' ''). As
noted previously, such CPOs relying upon on the Commission's
acceptance of Form PF in lieu of a Form CPO-PQR filing are currently
required to file NFA Form PQR on a quarterly basis under NFA Rule 2-
46.
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IV. Request for Comments
The Commission requests comment on all aspects of this proposal.
Additionally, the Commission would appreciate consideration of the
following specific questions:
A. Scope of Proposed Revised Form CPO-PQR
1. CPOs that are jointly regulated by the Commission and the SEC
are required to file Form PF with respect to private funds; many
commodity pools are private funds within the meaning of Form PF. One of
the Commission's initial rationales for adopting Form CPO-PQR was to
encourage more congruent and consistent regulation of similarly
situated entities among Federal financial regulatory agencies,
particularly with respect to dually registered CPOs required to file
Form PF. If Revised Form CPO-PQR is adopted as proposed, Form PF and
Form CPO-PQR would become less aligned, meaning that dually registered
CPOs would have reporting obligations that are noticeably different
from those CPOs only subject to the Commission's jurisdiction. Would
such a relative lack of regulatory congruence negatively impact CPOs?
Should the Commission instead rescind Form CPO-PQR in its entirety and
require all CPOs to file all or part of Form PF with NFA? Why or why
not?
2. Many dually registered CPOs currently include commodity pools
that are not private funds in data that they report on Form PF, in lieu
of a filing on Form CPO-PQR for such pools, pursuant to Sec. 4.27(d).
If the amendments proposed herein are adopted as final, these CPOs
could decide to stop including these pools in their Form PF filing. For
CPOs in this category, if Form CPO-PQR is amended as proposed, would
you cease reporting data for these pools on Form PF? Why or why not?
3. CPOs that operate commodity pools that are registered investment
companies must report financial information about those pools to the
SEC, while also providing annual pool financial statements to NFA. Is
there any additional reporting of investment company financial
information that the Commission has failed to consider in this proposal
that addresses the concerns underlying Form CPO-PQR?
4. Are there any specific questions that the Commission has
proposed to rescind that it should consider retaining? Why?
5. Are there ways the Commission could further clarify and refine
the reporting instructions for completing Revised CPO-PQR in order to
provide CPOs with greater certainty that they are completing the form
correctly? For example, could the form's references to other
regulations or its defined terms be simplified or made clearer? Please
suggest specific revisions.
B. NFA Form PQR
5. The Commission proposes to permit a timely filing with NFA of
NFA Form PQR in lieu of a filing of the revised Proposed Form CPO-PQR.
Should the Commission consider any other ways to further align with NFA
Form PQR? What would those ways be? Please describe in detail.
6. The schedule of investments as it currently appears in both
Revised Form CPO-PQR and NFA Form PQR requires significant granular
information regarding numerous asset classes. Are there any asset
classes that can or should be eliminated? Why or why not? Should the
Commission consider amending the schedule of investments to align with
the simpler schedule that appeared in NFA Form PQR in 2010?
C. Addition of LEIs
7. In order to further the analysis of Revised Form CPO-PQR across
other existing Commission data sets, the Commission is proposing to
require the inclusion of LEIs in Revised Form CPO-PQR, to the extent
that the CPO or its operated pools otherwise already have LEIs. The
inclusion of LEIs would also make this portion of Form CPO-PQR data
more accessible for analysis consistent with these other data sets.
Should the Commission include LEIs on Revised Form CPO-PQR? Why or why
not?
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires Federal agencies, in
promulgating regulations, to consider whether the rules they propose
will have a significant economic impact on a substantial number of
small entities and, if so, to provide a regulatory flexibility analysis
regarding the economic impact on those entities. Each Federal agency is
required to conduct an initial and final regulatory flexibility
analysis for each rule of general applicability for which the agency
issues a general notice of proposed rulemaking.\60\
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\60\ 5 U.S.C. 601 et seq.
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These regulatory amendments proposed by the Commission would affect
only persons registered or required to be registered as CPOs. The
Commission has previously established certain definitions of ``small
entities'' to be used by the Commission in evaluating the impact of its
rules on such entities in accordance with the requirements of the
RFA.\61\ With respect to CPOs, the Commission previously has determined
that a CPO is a small entity for purposes of the RFA, if it meets the
criteria for an exemption from registration under Sec. 4.13(a)(2).\62\
Because the regulations proposed in this document generally apply to
persons registered or required to be registered as CPOs with the
Commission, as well as from related compliance burdens, the RFA is not
applicable to this Proposal.
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\61\ See, e.g., Policy Statement and Establishment of
Definitions of ``Small Entities'' for Purposes of the Regulatory
Flexibility Act, 47 FR 18618, 18620 (Apr. 30, 1982).
\62\ Id. at 18619-20. Section 4.13(a)(2) exempts a person from
registration as a CPO when: 1) none of the pools operated by that
person has more than 15 participants at any time, and 2) when
excluding certain sources of funding, the total gross capital
contributions the person receives for units of participation in all
of the pools it operates or intends to operate do not, in the
aggregate, exceed $400,000. See 17 CFR 4.13(a)(2).
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Accordingly, the Chairman, on behalf of the Commission, hereby
certifies
[[Page 26385]]
pursuant to 5 U.S.C. 605(b) that these proposed amendments, if adopted,
will not have a significant economic impact on a substantial number of
small entities.
B. Paperwork Reduction Act
1. Overview
The Paperwork Reduction Act (PRA) imposes certain requirements on
Federal agencies in connection with their conducting or sponsoring any
collection of information as defined by the PRA.\63\ Under the PRA, an
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number from the Office of Management and Budget (OMB).
This Proposal, if adopted, would result in a collection of information
within the meaning of the PRA, as discussed below. The Commission is
therefore submitting this NPRM to OMB for review.
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\63\ See 44 U.S.C. 3501 et seq.
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The Proposal amends a single collection of information for which
the Commission has previously received a control number from OMB. This
collection of information is, ``Rules Relating to the Operations and
Activities of Commodity Pool Operators and Commodity Trading Advisors
and to Monthly Reporting by Futures Commission Merchants, OMB control
number 3038-0005'' (Collection 3038-0005). Collection 3038-0005
primarily accounts for the burden associated with part 4 of the
Commission's regulations that concern compliance obligations generally
applicable to CPOs and CTAs, as well as certain enumerated exemptions
from registration as such and exclusions from those definitions, and
available relief from compliance with certain regulatory requirements.
As discussed above, the Commission's Proposal includes substantive
changes to current Form CPO-PQR, such as (1) amending Schedule A, which
would constitute the entirety of Proposed Form CPO-PQR, to add LEIs for
each CPO and pool, (2) moving Schedule B's ``Schedule of Investments''
section to Schedule A, and (3) rescinding the remainder of the Form's
current Schedules B and C.\64\ Additionally, the Commission is
proposing to permit the filing of NFA Form PQR with NFA in lieu of
filing Form CPO-PQR by CPOs registered with the Commission. Therefore,
the Commission is also proposing herein to amend Collection 3038-0005,
such that the collection is consistent with the proposed restructuring
of Form CPO-PQR, and reflects the expected adjustment in burden hours
for registered CPOs filing the form, if revised as proposed, including
the ability to file NFA Form PQR in lieu of filing Revised Form CPO-
PQR.
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\64\ See supra pt. III.A.
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This Proposal is not expected to impose any significant new burdens
on CPOs. Rather, because approximately half of registered CPOs are Mid-
Sized or Large CPOs under the current filing regime and will have to
answer fewer questions as compared to the current filing requirements,
and because the Commission anticipates that CPOs currently classified
as Small CPOs will file their NFA Form PQR in lieu of the Revised Form
CPO-PQR, it is reasonable for the Commission to infer that the proposed
amendments will generally prove to be either less burdensome or without
new net burden for all CPOs. The Commission is, however, amending the
burden associated with the collection to reflect the increased
frequency of filing for all CPOs to quarterly and increasing the hours
per filing to reflect the addition of the pool schedule of investments
to the questions in Revised Form CPO-PQR that were derived from current
Schedule A. Although these proposed amendments result in an increase in
the burden hours associated with Revised Form CPO-PQR, the Commission
preliminarily expects that, in practice, CPOs will either experience no
change in their burden or a decrease in burden.
As discussed above, the Commission is proposing herein to accept
the filing of NFA Form PQR in lieu of a filing on Revised Form CPO-PQR.
Because under the proposal any data filed on NFA Form PQR would become
data collected by the Commission, the burden associated with NFA Form
PQR must be included in a collection of information with an OMB control
number. Therefore, the Commission is amending the current burden
associated with OMB Control Number 3038-0005 to also reflect the burden
resulting from NFA Form PQR, which the Commission estimates to be
substantively identical to that derived from Revised Form CPO-PQR.
Despite the fact that the Commission is proposing to accept the
filing of NFA Form PQR in lieu of a filing on Revised Form CPO-PQR, the
Commission preliminarily believes that it is necessary to retain its
own form for data collection purposes to ensure that it retains the
authority to address its data needs regarding CPOs in the future on a
unilateral basis should the need arise. Moreover, given the
Commission's preliminary expectation that it would incorporate the
information collected on Revised Form CPO-PQR more consistently with
its other data streams, the Commission preliminarily believes that
retaining its own form independent of NFA's form avoids any appearance
of the Commission leveraging NFA to avoid complying with the
obligations associated with rulemaking. The Commission also
preliminarily believes that doing so will ensure that members of the
public will be able to exercise their rights to engage in comment as to
the content and structure of the form consistent with the
Administrative Procedures Act going forward.\65\ Therefore, the
Commission has preliminarily concluded that the amendments to Form CPO-
PQR proposed herein are not unnecessarily duplicative to information
otherwise reasonably accessible to the Commission.
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\65\ 5 U.S.C. 500 et. seq.
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2. Revisions to the Collections of Information: OMB Control Number
3038-0005
Collection 3038-0005 is currently in force with its control number
having been provided by OMB, and it was renewed recently on January 30,
2019.\66\ As stated above, Collection 3038-0005 governs responses made
pursuant to part 4 of the Commission's regulations, pertaining to the
operations of CPOs and CTAs, including the required responses of
registered CPOs on Form CPO-PQR pursuant to Sec. 4.27. Generally, the
Commission is proposing adjustments, discussed below, to the
information collection that result in an increase in the burden hours
associated with the collection of information on the Revised Form CPO-
PQR. The Commission preliminarily believes, however, as previously
stated, that CPOs currently categorized as either Mid-Sized or Large
CPOs are expected to experience a reduction in burden relative to the
current filing requirements under Sec. 4.27 and Form CPO-PQR, and
Small CPOs under the current filing requirements are expected to
experience no increase in burden because they are currently required to
file NFA Form PQR, which includes a schedule of investments that is
identical to that under Revised Form CPO-PQR, on a quarterly basis,
and, under this proposal, such CPOs would be permitted to file NFA Form
PQR in lieu of filing Revised CPO-PQR.
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\66\ See Notice of Office of Management and Budget Action, OMB
Control No. 3038-0005, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201701-3038-005 (last retrieved July 31,
2018).
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[[Page 26386]]
The currently approved total burden associated with Collection
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3038-0005, in the aggregate, is as follows:
Estimated number of respondents: 45,097.
Annual responses for all respondents: 118,824.
Estimated average hours per response: 3.16.\67\
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\67\ The Commission rounded the average hours per response to
the second decimal place for ease of presentation.
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Annual reporting burden: 375,484.
The portion of the aggregate burden that is derived from the
current Form CPO-PQR filing requirements is as follows.
Schedule A (for non-Large CPOs and Large CPOs filing Form PF):
Estimated number of respondents: 1,450.
Annual responses for all respondents: 1,450.
Estimated average hours per response: 6.
Annual reporting burden: 8,700.
Schedule A (for Large CPOs not filing Form PF):
Estimated number of respondents: 250.
Annual responses for all respondents: 1,000.
Estimated average hours per response: 6.
Annual reporting burden: 6,000.
Schedule B (for Mid-Sized CPOs):
Estimated number of respondents: 400.
Annual responses for all respondents: 400.
Estimated average hours per response: 4.
Annual reporting burden: 1,600.
Schedule B (for Large CPOs not filing Form PF):
Estimated number of respondents: 250.
Annual responses for all respondents: 1,000.
Estimated average hours per response: 4.
Annual reporting burden: 4,000.
Schedule C (for Large CPOs not filing Form PF):
Estimated number of respondents: 250.
Annual responses for all respondents: 1,000.
Estimated average hours per response: 18.
Annual reporting burden: 18,000.
The burden associated with NFA Form PQR is as follows:
Estimated number of respondents: 1,700.
Annual responses by each respondent: 6,800.
Estimated average hours per response: 8.
Annual reporting burden: 54,400.
Total annual reporting burden for all CPOs for current Form CPO-PQR
and NFA Form PQR: 86, 900.
The Commission is proposing to no longer estimate burden hours
according to each individual Schedule of Form CPO-PQR, because,
pursuant to the Proposal, Revised Form CPO-PQR will only consist of one
schedule. Therefore, the Commission is proposing to simplify the
collection for Form CPO-PQR compliance to a single burden hours
estimate for each registered CPO completing Revised Form CPO-PQR in its
entirety.\68\ As noted above, the Commission is also proposing to
require that Revised Form CPO-PQR be filed quarterly by each registered
CPO, regardless of the size of their operations, which would result in
four (4) annual responses by each respondent. Further, in the
Commission's experience, the schedule of investments comprised a
considerable portion of the burden hours previously associated with
completing Schedule B, depending on the complexity of a CPO's
operations and the number of pools it operates. Thus, the Commission is
proposing an estimated average hours per response to ensure that burden
continues to be counted. As noted above, although the estimated hours
per response is expected to increase due to the retention of the
schedule of investments and the frequency of response will increase as
well for Small and Mid-Sized CPOs, as well as those Large CPOs filing
Form PF, CPOs should not experience an increase in burden because all
CPOs are already required to provide an identical schedule of
investments as part of their existing NFA Form PQR filing requirement,
which must be submitted on a quarterly basis, and the Commission
preliminarily believes that CPOs will continue to make such filing in
lieu of the Revised Form CPO-PQR.
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\68\ The Commission is also proposing to accept NFA Form PQR in
lieu of Revised Form CPO-PQR filing requirement, which the
Commission has designed purposefully to be very similar. See supra
pt. III.B. The PRA estimates proposed herein assume that all
registered CPOs will either file Revised Form CPO-PQR on a quarterly
basis, or NFA Form PQR, but in no event will a CPO be required to
file both.
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Therefore, the Commission estimates the burden to registered CPOs
for completing Revised Form CPO-PQR, as proposed herein, and NFA Form
PQR, because of the option to file this form in lieu of Revised Form
CPO-PQR, to be as follows:
For Revised Form CPO-PQR and NFA Form PQR for All Registered CPOs:
Estimated number of respondents: 1,700.
Annual responses by each respondent: 6,800.
Estimated average hours per response: 8.
Annual reporting burden: 54,400.
The new total burden associated with Collection 3038-0005, in the
aggregate, reflecting the adjustment in burden associated with Sec.
4.27 and Revised Form CPO-PQR, is as follows:
Estimated number of respondents: 43,062.
Annual responses for all respondents: 113,980.
Estimated average hours per response: 3.25.
Annual reporting burden: 370,467.
3. Request for Comments on Collection
The Commission invites the public and other Federal agencies to
comment on any aspect of the proposed information collection
requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the
Commission solicits comments in order to (i) evaluate whether the
proposed collections of information are necessary for the proper
performance of the functions of the Commission, including whether the
information will have practical utility; (ii) evaluate the accuracy of
the Commission's estimate of the burden of the proposed collections of
information; (iii) determine whether there are ways to enhance the
quality, utility, and clarity of the information proposed to be
collected; and (iv) minimize the burden of the proposed collections of
information on those who are to respond, including through the use of
appropriate automated collection techniques or other forms of
information technology.
Those desiring to submit comments on the proposed information
collection requirements should submit them directly to the Office of
Information and Regulatory Affairs, OMB, by fax at (202) 395-6566, or
by email at [email protected]. Please provide the Commission
with a copy of submitted documents, so that all comments can be
summarized and addressed in the final rule preamble. Refer to the
ADDRESSES section of this NPRM for comment submission instructions to
the Commission. A copy of the supporting statements for the collections
of information discussed above may be obtained by visiting https://www.RegInfo.gov. OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication of
this document in the Federal Register. Therefore, a comment is best
assured of
[[Page 26387]]
having its full effect if OMB receives it within 30 days of
publication.
C. Cost-Benefit Considerations
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its discretionary actions before promulgating a
regulation under the CEA or issuing certain orders.\69\ Section 15(a)
further specifies that the costs and benefits shall be evaluated in
light of five broad areas of market and public concern: (1) Protection
of market participants and the public; (2) efficiency, competitiveness,
and financial integrity of swaps markets; (3) price discovery; (4)
sound risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the CEA
section 15(a) considerations.
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\69\ 7 U.S.C. 19(a).
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As discussed above, the Commission is proposing amendments to Form
CPO-PQR that would significantly reduce the amount of reporting
required thereunder. Specifically, the proposal would: (1) Eliminate
the pool-specific reporting requirements in existing Schedules B and C
of Form CPO-PQR, other than the pool schedule of investments (question
6 of Schedule B); (2) amend the information in existing Schedule A of
the form to request LEIs for CPOs and their operated pools and to
eliminate questions regarding the pool's auditors and marketers; (3)
require all CPOs to submit all information retained in Revised Form
CPO-PQR on a quarterly basis; and (4) allow CPOs to file NFA Form PQR
in lieu of filing the Revised Form CPO-PQR, to the extent NFA Form PQR
is amended to include LEIs. In the sections that follow, the Commission
considers the various costs and benefits associated with each of aspect
of the proposal. The baseline against which these costs and benefits
are compared is the regulatory status quo, represented by Form CPO-PQR
as currently codified in appendix A to part 4.
The consideration of costs and benefits below is based on the
understanding that the markets function internationally, with many
transactions involving U.S. firms taking place across international
boundaries; with some Commission registrants being organized outside of
the United States; with some leading industry members typically
conducting operations both within and outside the United States; and
with industry members commonly following substantially similar business
practices wherever located. Where the Commission does not specifically
refer to matters of location, the discussion of costs and benefits
below refers to the effects of this proposal on all activity subject to
the proposed and amended regulations, whether by virtue of the
activity's physical location in the United States or by virtue of the
activity's connection with or effect on U.S. commerce under CEA section
2(i).\70\ Some CPOs are located outside of the United States.
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\70\ 7 U.S.C. 2(i).
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1. Elimination of Pool-Specific Reporting Requirements in Schedules B
and C
The Commission is proposing to eliminate the pool-specific
reporting requirements in existing Schedules B and C of Form CPO-PQR,
other than the pool schedule of investments (question 6 of Schedule B).
The Commission acknowledges that this change, if adopted, could result
in less information available to the Commission and, potentially, to
FSOC. The detailed and specific information requested in Schedules B
and C of Form CPO-PQR is not available to the Commission through any
other of its data streams and, if put to its full use, would allow for
monitoring of CPOs and their operated pools in a way that could help
identify trends and points of stress. A main reason for the
Commission's proposal to eliminate collection of this information stems
from the challenges associated with the data set, including that it is
only reported to the Commission on a quarterly basis, at its most
frequent. Given the limitations associated with the data collected, the
Commission has prioritized its limited resources to pursue other key
regulatory initiatives.
However, considering the alternate data streams currently available
to the Commission, the Commission preliminarily believes that the
Commission could nevertheless effectively exercise its oversight of
CPOs and their operated pools and potentially do so in a more efficient
manner if Revised Form CPO-PQR were adopted as proposed. Furthermore,
the Commission notes that, due in part to the identified data quality
issues, FSOC has never received any Form CPO-PQR data; however, the
Commission acknowledges that FSOC may receive less data as a result of
the proposal, as some CPOs that are filing CFTC-only pool information
through Form PF may stop doing so should this proposal be adopted as
final. The Commission does not, however, believe that FSOC's monitoring
abilities would be materially affected compared to the current status
quo should Schedules B and C largely be eliminated.
The Commission's proposal to eliminate these reporting requirements
would also reduce the ongoing variable compliance costs for Mid-Sized
and Large CPOs, as they would no longer need to devote resources to
compiling and reporting this data. Nor would CPOs be required to
monitor their AUM with the specific purpose of determining their filing
obligations as there would be a single requirement for all CPOs. It is
possible that such cost savings may allow those CPOs to devote
resources to other compliance or operational initiatives, or to
potentially pass them on to pool participants through reduced fees.
These cost savings would be minimized, however, for any CPO that is
dually registered with the SEC and required to file Form PF, which
requires reporting of information substantially similar to that
required in Schedules B and C of current Form CPO-PQR. Additionally,
the proposal would not alleviate any fixed costs affected CPOs may have
already spent in developing systems and procedures designed to meet the
reporting requirements in Schedules B and C, particularly if, again,
such CPOs are also required to file Form PF.
2. Revised Form CPO-PQR
The proposal would amend the information in existing Schedule A of
the form to request LEIs for CPOs and their operated pools. The
addition of this question would allow the Commission to be able to
integrate the data provided in Revised Form CPO-PQR with the
Commission's other more current data streams. Leveraging these other
data sources would enable the Commission to continue its oversight and
monitoring of counterparty risk and liquidity risk for some of the
largest pools within the Commission's jurisdiction, thereby focusing on
areas that are relevant for assessing market and systemic risk, while
eliminating the burden associated with the collection of the more
detailed information in current Schedules B and C, particularly with
respect to pools that may meet the current Large Pool threshold in the
future. The addition of this field should create a one-time cost for
CPOs required to file Revised Form CPO-PQR, as LEIs do not change over
time, potentially allowing fields for those questions to be
prepopulated for subsequent filings.
The proposal would further eliminate questions regarding the pool's
auditors and marketers. This amendment will result in reduced reporting
costs for reporting CPOs while not affecting the
[[Page 26388]]
scope of information available to the Commission, as the Commission
already receives information regarding CPO's accountants and has
alternate means of obtaining information about a pool's marketers. For
example, persons soliciting for pool participation units are typically
either associated persons of the CPO or registered representatives of a
broker dealer. Such persons are subject to regulation by either the
Commission and NFA, or the SEC and FINRA.
Currently, all CPOs other than Large CPOs submit the information in
Schedule A on an annual basis. Increasing the frequency of reporting of
this information will assist the Commission in its efforts to integrate
Revised Form CPO-PQR with the Commission's other more timely data
sources, so as to improve the effectiveness of its ability to monitor
and oversee the activities of CPOs and their operated pools. Although
this would result in an increased regulatory cost for Small and Mid-
Sized CPOs compared to the regulatory status quo, the costs as actually
realized by these CPOs may not be as significant, as they are already
reporting this information on a quarterly basis to NFA via NFA Form
PQR.
Under current Form CPO-PQR, only Mid-Sized and Large CPOs are
required to submit a pool schedule of investments, and Mid-Sized CPOs
only submit that information annually. The proposal would require all
CPOs to submit that information quarterly. The Commission believes that
receiving this information from all CPOs and more frequently would,
when combined with the proposed LEI requirements, further enhance its
ability to integrate the information in Revised CPO-PQR with its other
more current data streams and identify trends on a more timely basis,
with the ultimate goal of supporting its oversight and monitoring of
CPOs and their operated pools for market and systemic risk. As with the
change in reporting frequency for the information in Schedule A, this
change would result in an increased regulatory cost compared to the
regulatory status quo for Small and Mid-Sized CPOs, as Small CPOs would
be required to develop the procedures and systems necessary to take on
the additional reporting obligations for the pool schedule of
investments and both Small and Mid-Sized CPOs would now report that
information on a quarterly basis. However, all CPOs are already
required to report this information on a quarterly basis to NFA via NFA
Form PQR, meaning the actual costs as realized by these CPOs may not be
as significant.
The proposal would allow CPOs to file NFA Form PQR in lieu of
filing the Revised Form CPO-PQR, to the extent NFA Form PQR is amended
to include LEIs, as the Commission understands NFA has planned. Under
NFA's rules, all CPOs regardless of size are currently required to file
NFA Form PQR on a quarterly basis. This provision would therefore
operate to help CPOs maintain their current filing costs without
affecting the scope of information available to the Commission under
Revised Form CPO-PQR.
As mentioned above, the Commission acknowledges that, through the
proposed revision of Sec. 4.27(d), the proposal could result in less
data being collected on Form PF as compared to the current status quo.
Many dually registered CPOs currently include commodity pools that are
not private funds in data that they report on Form PF, in lieu of a
filing on Form CPO-PQR for such pools, in reliance on Sec. 4.27(d). If
Sec. 4.27(d) is revised, these CPOs could decide to stop including
these pools in their Form PF filing. The Commission preliminarily
believes, however, that this loss of data to the SEC and FSOC would not
meaningfully impact the efficacy and intent of Form PF in furthering
the oversight of the private fund industry, given that it would only
result in the loss of data with respect to non-private fund pools;
however, the Commission acknowledges that FSOC may lose data for a
specific type of private fund asset class, managed futures.
3. Alternatives
In lieu of amending Form CPO-PQR as proposed, the Commission could
require all CPOs, regardless of whether they are dually registered, to
file Form PF. The Commission preliminarily believes that this
alternative could operate to increase the reporting burdens for CPOs
that are not dually registered with the SEC without feeding information
directly to the Commission that could be integrated with its other data
sources to develop its internal oversight initiatives over CPOs and
their operated pools.
Alternatively, the Commission could devote resources to rectifying
the challenges with the data reported under current Form CPO-PQR, and
amend the Form to require greater consistency and frequency of
reporting of the data fields proposed to be eliminated in this
proposal. However, the Commission preliminarily believes that its
limited resources could be better directed in line with its regulatory
priorities, and that its objectives with respect to oversight of CPOs
and their operated pools could be effectively and potentially, more
efficiently, achieved through integration with existing data streams.
The Commission preliminarily believes that the proposed changes to
Form CPO-PQR, relative to the alternatives, would permit the Commission
to discharge its regulatory duties with respect to CPOs and their
operated pools that might have the greatest impact on market and
systemic risk while easing reporting obligations on a significant
number of CPOs. The Commission requests comments and data on how
potential alternatives would impact the potential costs and benefits to
market participants and the public. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the Proposal?
4. Section 15(a) Factors
a. Protection of Market Participants and the Public
The Commission preliminarily believes that the proposal would
enhance the ability of the Commission to protect derivatives markets,
its participants, and the public by allowing it to integrate the data
provided in Revised Form CPO-PQR with other existing, more up-to-date,
data streams in a way that would allow the Commission to better
exercise its oversight of CPOs and their operated pools. The Commission
notes that the amendments proposed herein could result in a loss of
data available to FSOC, which could limit FSOC's visibility into the
activities of CPOs and their operated pools.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
The Commission preliminarily believes that the proposal would
assist the Commission in its efforts to support market efficiency,
competitiveness, and financial integrity. Under the proposal, CPOs
would continue to provide useful information about themselves and their
pools to the Commission in a way that it could incorporate with other
data streams to improve its oversight of CPOs, their pools, and how
they operate within and affect the derivatives markets. Additionally,
the Commission preliminarily believes that the specific requirement
that a CPO prepare a pool schedule of investments on a quarterly basis
for each of its operated pools could result in heightened diligence by
the CPO with respect to the pools' ongoing operations and encourage
particularly smaller CPOs to adopt more formalized controls for their
businesses,
[[Page 26389]]
which the Commission preliminarily believes would enhance the
confidence of other market participants in transacting with CPOs and
their operated pools.
c. Price Discovery
The Commission has not identified any impact that the Proposal
would have on price discovery.
d. Sound Risk Management Practices
Although the Commission is proposing that it no longer require CPOs
and their operated pools to report certain risk information, the
Commission recognizes that CPOs will likely continue to benefit from
possessing systems that collect and review risk-related information.
The Commission has not identified any other impact that the Proposal
would have on sound risk management practices.
e. Other Public Interest Considerations
The Commission has not identified any impact on any other public
interest considerations that the Proposal would have, but seeks public
comment on any public interest the Commission should consider in this
rulemaking.
5. Request for Comments
The Commission invites public comment on its cost-benefit
considerations, including the Section 15(a) factors described above.
Commenters are invited to submit with their comment letters any data or
other information that they may have that quantifies the costs and
benefits of the Proposal. In addition, the Commission invites the
public comment on the following questions.
1. Has the Commission misidentified any costs or benefits? If so,
please explain.
2. Please explain whether CPO compliance costs would increase or
decrease as a result of reduced reporting requirements in this
Proposal? Please provide all quantitative and qualitative costs,
including, but not limited to personnel costs and technological costs.
3. Would harmonization of Form CPO-PQR with other similar forms,
such as Form PF, provide a greater savings in compliance costs? If so,
please describe all quantitative and qualitative savings. Please
provide all quantitative and qualitative costs, including, but not
limited to personnel costs and technological costs.
D. Antitrust Laws
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
purposes of the CEA, in issuing any order or adopting any Commission
rule or regulation (including any exemption under CEA section 4(c) or
4c(b)), or in requiring or approving any bylaw, rule, or regulation of
a contract market or registered futures association established
pursuant to section 17 of this Act.\71\
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\71\ 7 U.S.C. 19(b).
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The Commission preliminarily believes that the public interest to
be protected by the antitrust laws is generally to protect competition.
The Commission requests comment on whether the Proposal implicates any
other specific public interest to be protected by the antitrust laws.
The Commission has considered the Proposal to determine whether it
is anticompetitive and has preliminarily identified no anticompetitive
effects. The Commission requests comment on whether the Proposal is
anticompetitive and, if it is, what the anticompetitive effects are.
Because the Commission has preliminarily determined that the
Proposal is not anticompetitive and has no anticompetitive effects, the
Commission has not identified any less anticompetitive means of
achieving the purposes of the Act. The Commission requests comment on
whether there are less anticompetitive means of achieving the relevant
purposes of the Act that would otherwise be served by adopting the
Proposal.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity pool operators,
Commodity trading advisors, Consumer protection, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR part 4 as set forth below:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
0
1. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,
and 23.
0
2. Amend Sec. 4.27 by revising paragraphs (c)(1) and (d) to read as
follows:
Sec. 4.27 Additional reporting by commodity pool operators and
commodity trading advisors.
* * * * *
(c) * * *
(1) Each reporting person shall file with the National Futures
Association, a report with respect to the directed assets of each pool
under the advisement of the commodity pool operator consistent with
appendix A to this part or commodity trading advisor consistent with
appendix C to this part; Provided that, a commodity pool operator
required to file NFA Form PQR with the National Futures Association for
the reporting period may make such filing in lieu of the report
required under this section consistent with appendix A to this part.
* * * * *
(d) Investment advisers to private funds. CPOs and CTAs that are
dually registered with the Securities and Exchange Commission, and that
are required to file Form PF under the rules promulgated under the
Investment Advisers Act of 1940, shall file Form PF with the Securities
and Exchange Commission. Dually registered CPOs and CTAs that file Form
PF with the Securities and Exchange Commission will be deemed to have
filed Form PF with the Commission for purposes of any enforcement
action regarding any false or misleading statement of a material fact
in Form PF.
* * * * *
0
3. Revise appendix A to part 4 to read as follows:
Appendix A to Part 4--Form CPO-PQR
BILLING CODE 6351-01-P
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BILLING CODE 6351-01-C
Issued in Washington, DC, on April 16, 2020, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Amendments to Compliance Requirements for Commodity Pool
Operators on Form CPO-PQR--Commission Voting Summary and Commissioners'
Statements
Appendix 1--Commission Voting Summary
On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Supporting Statement of Chairman Heath P. Tarbert
The esteemed 19th century mathematician Charles Babbage asked
``if you put into the machine the wrong figures, will the right
answers come out?'' \1\ Baggage foresaw what would evolve in the
20th century as the ``garbage-in, garbage-out'' predicament--a
potential pitfall now only magnified in the 21st century by the
combination of computing technology and vast amounts of data. Since
becoming Chairman, I have prioritized improving the CFTC's approach
to collecting data. As a federal agency, we must be selective about
the data we collect, and then make sure we are actually making good
use of the data for its intended purpose.
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\1\ Charles Baggage, Passages from the Life of a Philosopher
(London 1864).
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This issue has arisen in a number of contexts here at the CFTC.
For example, we recently proposed amendments to our swap data
reporting rules, which cover both regulatory reporting and the
disclosure of certain swap transaction data to the public at
large.\2\ The purpose of those amendments is to simplify the swap
data reporting process to ensure that market participants are not
burdened with unclear or duplicative reporting obligations that do
little to reduce market risk or facilitate price discovery. If those
amendments are adopted, the CFTC will no longer collect data that
does not advance our oversight of the swaps markets.\3\ And we will
start collecting additional data that does.
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\2\ See Proposed Rule: Amendments to the Real-Time Public
Reporting Requirements (Part 43) (Feb. 20, 2020) (publication in the
Federal Register forthcoming); and Proposed Rule: Amendments to the
Swap Data Recordkeeping and Reporting Requirements (Part 45) (Feb.
20, 2020) (publication in the Federal Register forthcoming).
\3\ See Heath P. Tarbert, Chairman, CFTC, Statement in Support
of Proposed Rules on Swap Data Reporting (Feb. 20, 2020), available
https://www.cftc.gov/PressRoom/SpeechesTestimony/tabertstatement022020.
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Today we are engaged in a similar exercise. We are considering
amendments to the compliance requirements for commodity pool
operators (``CPOs'') on Form CPO-PQR. These amendments reflect the
CFTC's reassessment of the scope of Form CPO-PQR and how it aligns
with our current regulatory priorities. By refining our approach to
data collection, today's amendments--in conjunction with our current
market surveillance efforts--would enhance the CFTC's ability to
gain more timely insight into the activities of CPOs and their
operated pools. At the same time, the amendments would reduce
reporting burdens for market participants.
Background on Form CPO-PQR
Form CPO-PQR requests information regarding the operations of a
CPO, and each pool that it operates, in varying degrees of frequency
and complexity, depending upon the assets under management (``AUM'')
of both the CPO and the operated pool(s). When adopting Form CPO-PQR
in 2012, the Commission determined that form data would be used for
several broad purposes, including:
Increasing the CFTC's understanding of our registrant
population;
assessing the market risk associated with pooled
investment vehicles under our jurisdiction; and
monitoring for systemic risk.\4\
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\4\ See Commodity Pool Operators and Commodity Trading Advisors:
Compliance Obligations, 77 FR 11252 (Feb. 24, 2012).
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For the majority of more pool-specific questions on Form CPO-
PQR, the Commission believed the incoming data would assist the CFTC
in monitoring commodity pools to identify trends over time. For
example, the CFTC would get information regarding a pool's exposure
to asset classes, the composition and liquidity of a pool's
portfolio, and a pool's susceptibility to failure in times of
stress.\5\
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\5\ See Commodity Pool Operators and Commodity Trading Advisors:
Amendments to Compliance Obligations, 76 FR 7976, 7981 (Form CPO-PQR
Proposal) (Feb. 11, 2011).
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Shortcomings of Form CPO-PQR
Seven years of experience with Form CPO-PQR, however, have not
born out that vision. To begin with, in an effort to take into
account the different ways CPOs maintain information, the Commission
has allowed CPOs flexibility in how they calculate and present
certain of the data elements. As a result, it has been challenging,
to say the least, for the CFTC to identify trends across CPOs or
pools using Form CPO-PQR data. In addition, taking into account the
volume and complexity of the data it was requesting, the Commission
decided not to require the data to be provided in real-time, but
instead mandated only post hoc quarterly or annual filings.
As the CFTC staff has reviewed the data over the years, it has
become apparent that the disparate, infrequent, and delayed nature
of CPO reporting has made it difficult to assess the impact of CPOs
and their operated pools on markets. This is largely because
conditions and relative CPO risk profiles may have changed,
potentially significantly, by the time Form CPO-PQR is filed with
the CFTC. This was not entirely unforeseen. When Form CPO-PQR was
adopted, some criticized the rulemaking, raising concerns about
whether the information gathered would enable the CFTC to monitor
commodity pools for systemic risk effectively.\6\ They likewise
questioned
[[Page 26411]]
whether the CFTC even had the resources to do so and in fact would
do so.\7\
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\6\ See, e.g., Jill E. Sommers, Commissioner, CFTC, Dissenting
Statement, Commodity Pool Operators and Commodity Trading Advisors:
Amendments to Compliance Obligations (Feb. 9, 2012), available
https://www.cftc.gov/PressRoom/SpeechesTestimony/sommersstatement020912a.
\7\ Id.
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Sound Regulation Means Collecting Information We Intend To Use
What we need is not over-regulation or even de-regulation, but
rather sound regulation.\8\ In the midst of the coronavirus
pandemic, when we are facing the greatest economic challenge since
the 2008 financial crisis, and possibly since the Great Depression,
the fact that we are asking market participants to put all this time
and effort into providing us data that is difficult to integrate
with the CFTC's other more timely and standardized data streams is
not sound regulation. Frankly, it is wasteful and an example of bad
government.
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\8\ See CFTC Vision Statement, available https://www.cftc.gov/About/Mission/index.htm.
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My colleague Commissioner Dan Berkovitz recently made the
following observation: ``In addition to obtaining accurate data, the
Commission must also develop the tools and resources to analyze that
data.'' \9\ He is spot on. I believe the converse is also true. We
should not collect data we cannot use effectively. In the case of
Form CPO-PQR, this means not requiring market participants to
provide information that the CFTC has neither the resources nor the
ability to analyze with our other data streams. Our credibility as a
regulator is strengthened when we honestly admit that our
regulations ask for data that we both have not used effectively and
have no intention of using going forward. That is what we are doing
today.
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\9\ Dan M. Berkovitz, Commissioner, CFTC, Statement on Proposed
Amendments to Parts 45, 46, and 49: Swap Data Reporting Requirements
(Feb. 20, 2020), available https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement022020b.
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Alternative Sources of Data Are Available to the Commission
Although we would be eliminating some components of Form CPO-
PQR--those required data that the CFTC has not used in meeting its
mission--Form CPO-PQR is not our only source of data regarding
commodity pools. The CFTC has devoted substantial resources to
developing other data streams and regulatory initiatives designed to
enhance our ability to surveil financial markets for risk posed by
all manner of market participants, including CPOs and their operated
pools. These data streams include extensive information related to
trading, reporting, and clearing of swaps. Importantly, most of the
transaction and position information the CFTC uses for our
surveillance activities is available on a more timely and frequent
basis than the data received on the current iteration of Form CPO-
PQR. Furthermore, CFTC programs to conduct surveillance of
exchanges, clearinghouses, and futures commission merchants already
include CPOs and do not rely on the information contained in
Schedules B and C of Form CPO-PQR.
Taken together, the CFTC's other existing data efforts have
enhanced our ability to surveil financial markets, including with
respect to the activities of CPOs and the pools they operate. In
general, the CFTC's alternate data streams provide a more timely,
standardized, and reliable view into relevant market activity than
that provided under Form CPO-PQR. The proposal contemplates a
revised Form CPO-PQR that would be more easily integrated with these
existing and more developed data streams. This would enable the CFTC
to oversee and assess the impact of CPOs and their operated pools in
a way that is both more effective for us and less burdensome for
those we regulate.
Legal Entity Identifiers Are Something We Need
Our proposal does more than simply eliminate certain data
collections. It would also require the collection of an additional
piece of key information: Legal entity identifiers (``LEIs'') for
CPOs and their operated pools. LEIs are critical to understanding
the activities and interconnectedness within financial markets.
Although LEIs have been around since 2012 and authorities in over 40
jurisdictions have mandated the use of LEI codes to identify legal
entities involved in a financial transaction,\10\ this would be a
new requirement for Form CPO-PQR. The lack of LEI information for
CPOs and their operated pools has made it challenging to align the
data collected on Form CPO-PQR with the data received from
exchanges, clearinghouses, swap data repositories, and futures
commission merchants. As a result, we cannot always get a full
picture of what is happening in the markets we regulate.
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\10\ See Financial Stability Board, Thematic Review on
Implementation of the Legal Entity Identifier, Peer Review Report
(May 28, 2019), available https://www.fsb.org/wp-content/uploads/P280519-2.pdf.
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The Commission is therefore proposing to amend Form CPO-PQR to
include a question seeking the LEIs of both CPOs and the operated
pools. The inclusion of LEIs within this smaller data set on the
amended Form CPO-PQR should enable the CFTC to synthesize the
various data streams on an entity-by-entity basis more efficiently
and accurately. Inclusion of LEIs may also permit better use of swap
data repository and other data to illuminate any risks inherent in
pools and pool families.
In addition, the proposal would better align Form CPO-PQR with
Form PQR of the NFA, which all CPOs must file quarterly and which
the NFA may revise to include questions regarding LEIs. Under these
circumstances, we could permit a CPO to file NFA Form PQR in lieu of
our Form CPO-PQR as revised. In doing so, we would offer CPOs
greater filing efficiencies without compromising our ability to
obtain relevant data.
Data Sharing With the OFR Could Be Improved
The Dodd-Frank Act established the Office of Financial Research
(``OFR'') nearly a decade ago to look across our financial system
for risks and potential vulnerabilities.\11\ It was contemplated
that the OFR would have access to data from other U.S. financial
regulators. Yet to date, the CFTC has shared none of the Form CPO-
PQR data with the OFR, largely because of the shortcomings outlined
above.
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\11\ See Sections 151-56 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376
(2010), available https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
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Another benefit of today's proposal is that we intend to share
with the OFR the information collected on Form CPO-PQR once it is
revised. To this end, we are presently in the process of negotiating
a memorandum of understanding with the OFR, which will allow us for
the first time to provide the information we collect regarding CPOs.
Conclusion
For these reasons, I am pleased to support the Commission's
proposal to amend the compliance requirements for CPOs on Form CPO-
PQR. Form CPO-PQR as revised would focus on the collection of data
elements that can be used with other CFTC data streams and
regulatory initiatives to facilitate oversight of CPOs and their
pools. The proposal would reduce data collection requirements for
market participants, while mandating disclosure of LEIs by CPOs and
their operated pools. Focusing on enhancing data collection by the
agency is no doubt tedious. Nonetheless, I am convinced it leads to
smarter regulation that helps promote the integrity, resilience, and
vibrancy of U.S. derivatives markets.
Appendix 3--Supporting Statement of Commissioner Brian Quintenz
I support today's proposal that would simplify and streamline
the reporting obligations of commodity pool operators (CPOs) on Form
CPO-PQR. The proposal would eliminate much of existing Schedules B
and C, which together contain roughly 72 distinct questions, if one
includes all the separately identifiable subparts. Many of these
questions are challenging for CPOs to calculate precisely and
require numerous underlying assumptions that vary from firm to firm,
making it difficult, if not impossible, for the Commission to
perform an apples-to-apples comparison across the commodity pool
industry.
Moreover, in my opinion, many of these questions are more
academic than pragmatic in nature--information that may be nice for
the Commission to have, but data that is certainly not necessary for
the Commission to effectively oversee commodity pools and the
derivatives markets. For example, under the proposal, the Commission
would no longer request information about the geographical breakdown
of a pool's investments or the aggregate value of a pool's
derivatives positions--the latter of which provides almost no
insight into a pool's actual risk because it does not take into
account collateral. I would also note that large pools file the Form
CPO-PQR within 60 days of the end of a calendar quarter. This means
that by the time Commission staff receives the
[[Page 26412]]
information on the form, it is already stale and out-of-date, which
seriously diminishes its utility for purposes of real-time
monitoring of risk or market activity.
Importantly, the proposal retains questions regarding a pool's
schedule of investments, which contains information that is critical
for the National Futures Association's and the Commission's
supervision and examination programs for CPOs. The proposed
revisions to Form CPO-PQR would also align the Commission's form
with the NFA's Form PQR, which will simplify the filing process for
CPOs and ensure the Commission has the same visibility as the NFA
into the operations of CPOs. I am also pleased the proposal would
require CPOs and their operated pools to include their legal entity
identifiers (LEIs), to the extent they have LEIs due to their swap
trading activity. The inclusion of LEIs will enable the Commission
to aggregate the information reported on the Form CPO-PQR with the
swap data information reported to the Commission under Part 45. Over
time, I hope this will provide the Commission with a greater
understanding of how a CPO's swap activities complement its other
investment activities.
The proposal also requests comment on whether there are ways the
Commission could clarify or refine its instructions for completing
the Form CPO-PQR. I encourage market participants to take a close
look at the form's instructions and related frequently asked
questions documents to determine if the filling process can be
simplified.
In closing, I would like to thank the Division of Swap Dealer
and Intermediary Oversight for its hard work in advancing this
important proposal.
Appendix 4--Concurring Statement of Commissioner Rostin Behnam
I respectfully concur with the Commodity Futures Trading
Commission's (the ``Commission'' or ``CFTC'') issuance of a proposed
rule (the ``Proposal'') to amend Regulation 4.27 and Form CPO-PQR.
In devising the Proposal, Commission staff judiciously evaluated
several years of returns on the Commission's collection of detailed
data from commodity pool operators (CPOs)--data anticipated to
provide valuable insights to both the Commission and the Financial
Stability Oversight Counsel (FSOC) as we collectively moved into a
new era of Wall Street reform on the heels of the 2008 financial
crisis. In my view, the general conclusion that the Proposal
elucidates: the information collected in the current Form CPO-PQR as
well as its frequency of collection is simply not fit for purpose.
The determination to bring seven years of data collection aimed
at supporting the goals of the Dodd-Frank Act \1\ to an abrupt end
may, in this particular instance, be an appropriate revision. The
Proposal intends to markedly reduce the Commission's collection of
granular, pool-specific data from a significant population of CPOs.
However, the evidence suggests that the challenges of working with
such data have undercut its potential value. Therefore, any data
loss should not undermine the Commission's oversight or FSOC's
current monitoring efforts. At this point in time, the Commission
should take the opportunity to make strategic, programmatic and
disciplined changes.
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\1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010) (the ``Dodd-Frank
Act'').
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In terms of the data and the transactions the Commission thought
possible within our Form CPO-PQR database, results have been mixed.
The Proposal aims to make targeted corrections, without forgoing the
possibility of future adjustments should the Commission later
determine that additional data collection would support regulatory
initiatives or would be responsive to FSOC requirements to fulfill
statutorily mandated duties and initiatives aimed at identifying and
monitoring risks to financial stability.\2\
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\2\ See Proposal at I. Not only is the Commission among those
agencies that could be asked to provide information necessary for
the FSOC to perform its statutorily mandated duties, but the FSOC
may issue recommendations to the Commission regarding more stringent
regulation of financial activities that FSOC determines may create
or increase systemic risk. See Dodd-Frank Act Sec. Sec. 112(d)(1),
120; See also Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, 76 FR 71128, 71129 (Nov. 16, 2011); Commodity Pool
Operators and Commodity Trading Advisors: Compliance Obligations, 77
FR 11252, 11253 (Feb. 24, 2012).
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The 2008 financial crisis exposed numerous weaknesses in the
U.S. financial regulatory framework. Unfortunately, many were at the
expense of main street Americans. The legislative response was swift
and effective in reforming our nation's financial regulatory regime.
One of the more pressing needs that the Dodd-Frank Act addressed
relates to data collection and analysis as a tool to monitor,
surveil and detect financial market risk. All with the intention of
anticipating and catching stability and resiliency concerns before
it is too late. As all U.S. regulators continue to adapt to the new
framework--even a decade later--adopting reforms quickly in some
cases, and more gradually in others, we all collectively continue to
learn and develop better practices at data collection and analysis.
Although not perfect, our regulatory purpose and mission is clear,
and the importance of efficient and effective data to fulfilling our
statutory mandate cannot be understated. As we all are experiencing
the evolution of the nation's tech economy, it is hard to ignore the
engine of its success: Data. This is the world we live in, and
policymakers and regulators alike must keep pace while exercising
appropriate discipline in collecting, handling, and managing data.
This Proposal focuses on the Commission's data needs in support
of CPO and commodity pool oversight. The Proposal seeks to account
for: (1) Other data streams, regulatory initiatives, and risk
surveillance programs that support the Commission's monitoring of
CPO and commodity pool activities as enhanced by improvements to the
Commission's data integration and analysis capabilities; (2) the
Commission's statutory obligations to make data available to the
FSOC and the impact of the proposed amendments on FSOC's monitoring
abilities; (3) the duties of CPOs that are dually registered with
the Securities and Exchange Commission (SEC) as private fund
advisors and are required to file Form PF as well as the scope of
current Form PF; (4) the data elicited by the National Futures
Association's (NFA's) Form PQR, a form comparable to Form CPO-PQR
filed by all CFTC-registered CPOs, regardless of size, used to
support NFA's risk-based examination program for CPOs; and (5)
reduced reporting burdens and increased filing efficiencies for
affected CPOs. I appreciate the Commission's and its staff's ongoing
engagement with the SEC and FSOC, as well as with NFA, throughout
the drafting of this Proposal and am encouraged that discussions are
ongoing. I also appreciate staff's consideration and inclusion of
several of my suggested edits to this Proposal.
I support issuance of the Proposal; however, I am concerned that
in proposing to amend Regulation 4.27(d) to no longer accept Form PF
filing in lieu of the proposed revised Form CPO-PQR, less data may
be collected on Form PF from dually regulated CPOs.\3\ Should the
Proposal be finalized in its current form, FSOC may receive less
data from certain CPOs who have been reporting information on
commodity pools that are not private funds in the data they report
on Form PF in lieu of filing Form CPO-PQR for such pools, as
currently permitted under Regulation 4.27(d). To the extent the
Proposal may have the side-effect of undermining ongoing FSOC
surveillance and monitoring efforts by eliminating the incentivized
reporting of CFTC-pool only information on Form PF, I urge members
of the public to respond to related requests for comment embedded in
the Proposal.\4\ Notwithstanding my concerns, I am pleased that, to
the extent the interests of the SEC and FSOC may be impacted, each
has had and continues to have ample opportunity to weigh-in.
Moreover, should the FSOC determine that it requires additional data
from dually regulated CPOs or CPOs generally; it has authority to
request such data submissions directly from the Commission or,
alternatively, consult with the SEC--and more indirectly, with the
CFTC--regarding the form and content of Form PF.\5\
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\3\ See Proposal at III.C.
\4\ See Proposal at IV.
\5\ See note 2.
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I would like to close by again thanking staff for all of their
hard work on this important Proposal, specifically in these
difficult and unique times, and look forward to considering comments
from the public. To that end, if needed, I encourage market
participants to request an extension of the comment period. As we
all continue to endure the challenges of new realities at home and
in the workplace as a result of the Covid-19 pandemic, I firmly
believe the Commission needs to be as flexible as necessary to
accommodate market participants and the general public in their
efforts to provide us with the best comments to rulemakings. I have
made my position clear on what and how the Commission
[[Page 26413]]
should be allocating its resources during these unprecedented times.
Appendix 6--Statement of Commissioner Dan M. Berkovitz
I am voting in favor of this proposed rule to amend Regulation
4.27 and Form CPO-PQR (``Proposal''). The information in Form CPO-
PQR that no longer would be required under the Proposal has not
proven to be useful to the Commission in identifying or measuring
systemic or idiosyncratic risk.
In the wake of the financial crisis and the enactment of the
Dodd-Frank Act, the Commission required certain commodity pool
operators (``CPOs'') to report on Form CPO-PQR a variety of data
that, at the time, the Commission believed would enable it to assess
risks presented by pooled commodity investment vehicles, such as a
pool's exposure to certain asset classes and susceptibility to
market stress.\1\ As the Proposal explains, however, the
Commission's experience over the past seven years has unfortunately
demonstrated that some of the information on Schedules B and C of
Form CPO-PQR has not been useful for these purposes. The Proposal
would amend the Form CPO-PQR requirements to eliminate the
information that has not proven to be of value to the Commission,
yet retain the requirements to report useful information, such as
the pool schedule of investments.\2\
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\1\ See Final Rule, Commodity Pool Operators and Commodity
Trading Advisors: Amendments to Compliance Obligations, 77 FR 11252,
11252 (Feb. 24, 2012).
\2\ ``The eliminated data elements include detailed, pool-
specific information, provided on both the individual and aggregate
level, such as questions about investment strategy and counterparty
credit exposure, asset liquidity and concentration of positions,
clearing relationships, risk metrics, financing, and investor
composition.'' Proposal, Amendments to Compliance Requirements for
Commodity Pool Operators on Form CPO-PQR, at Sect. III.A.
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At the same time as the Commission streamlines its data
collection requirements, it must also make better use of the data
that it does collect. The Commission gathers a diverse and large
array of data on a daily basis for over-the-counter and exchange-
traded derivatives transactions.\3\ As the Proposal notes, these
data sets have the potential to be more useful for risk monitoring
and surveillance purposes than certain static information collected
quarterly through Form CPO-PQR. But the Commission still has a long
way to go before it can use such data to perform a comprehensive,
forward-looking analysis of our markets. The Commission should
improve its strategies and capabilities for aggregating and
analyzing the information it will continue to receive.
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\3\ See generally id. at Sect. III.
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The Proposal would take one step in this direction by requiring
CPOs using the swap markets to report legal entity identifiers
(``LEIs''). Collecting LEIs is important because they allow the
Commission to aggregate SDR data from related pools, thereby
furthering our understanding of the role these pools play in our
markets. However, the Proposal does not require all firms, such as
those that do not trade swaps, to obtain and report LEIs, so this
amendment will not allow the Commission to aggregate all derivatives
transactions by pools under common control. The Commission can and
should do more to integrate and analyze all of the data at its
disposal.
Finally, I am pleased that the comment period for this Proposal
is 60 days. Providing the public with sufficient time to prepare
meaningful comments to our rules in these extraordinary times is
good public policy.
I encourage the public to comment on this Proposal. In
particular, the Proposal acknowledges that by removing from Form
CPO-PQR some of the pool-specific data in Schedules B and C, less
information would be available to the Financial Stability Oversight
Counsel (``FSOC''). The Proposal also notes, however, that FSOC
otherwise receives comparable data for the large portion of dually
registered CPOs via Form PF. I am interested in commenters' views on
whether this amendment would affect FSOC's ability to monitor for
systemic risk.
I would like to thank the staff, particularly the Division of
Swap Dealer and Intermediary Oversight, for their engagement with my
office on this Proposal. I look forward to the Commission
articulating further steps to enhance its surveillance of commodity
pools, and our markets more broadly.
[FR Doc. 2020-08496 Filed 5-1-20; 8:45 am]
BILLING CODE 6351-01-P
