Compliance Requirements for Commodity Pool Operators on Form CPO-PQR

Published date10 November 2020
Record Number2020-22874
SectionRules and Regulations
CourtCommodity Futures Trading Commission
71772
Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Rules and Regulations
1
7 U.S.C. 1a(11). The Act is found at 7 U.S.C. 1,
et seq. (2018), and is accessible through the
Commission’s website, https://www.cftc.gov.
2
7 U.S.C. 1a(38); 17 CFR 1.3, ‘‘person’’ (defining
‘‘person’’ to include individuals, associations,
partnerships, corporations, and trusts). The
Commission’s regulations are found at 17 CFR ch.
I (2020), and are accessible through the
Commission’s website, https://www.cftc.gov.
3
7 U.S.C. 1a(11); see also 17 CFR 1.3,
‘‘commodity pool operator.’’
4
7 U.S.C. 6m(1).
5
7 U.S.C. 6n(3)(A). Registered CPOs have
regulatory reporting obligations with respect to
their operated pools. See, e.g., 17 CFR 4.22.
6
Public Law 111–203, 124 Stat. 1376 (2010).
7
Section 202(a)(29) of the Investment Advisers
Act of 1940 (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.’’ Advisers Act
Section 202(a)(29), 15 U.S.C. 80ab–2(a)(29).
8
Commodity Pool Operators and Commodity
Trading Advisors: Compliance Obligations, 77 FR
11252 (Feb. 24, 2012) (Form CPO–PQR Final Rule);
17 CFR part 4, app. A; 17 CFR 4.27.
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 4
RIN 3038–AE98
Compliance Requirements for
Commodity Pool Operators on Form
CPO–PQR
AGENCY
: Commodity Futures Trading
Commission.
ACTION
: Final rule.
SUMMARY
: The Commodity Futures
Trading Commission (CFTC or
Commission) is adopting amendments
(the Final Rule) to Commission
regulations on additional reporting by
commodity pool operators (CPOs) and
commodity trading advisors and to
Form CPO–PQR (also, the form). The
Commission is: Eliminating existing
Schedules B and C of Form CPO–PQR,
except for the Pool Schedule of
Investments; amending the information
requirements and instructions to request
Legal Entity Identifiers (LEIs) for CPOs
and their operated pools that have them,
and to delete questions regarding pool
auditors and marketers; and making
certain other changes due to the
rescission of Schedules B and C,
including the elimination of all existing
reporting thresholds. Pursuant to the
Final Rule, all reporting CPOs will be
required to file the revised Form CPO–
PQR (Revised Form CPO–PQR, or the
Revised Form) quarterly. The Final Rule
also amends Commission regulations to
permit reporting CPOs to file NFA Form
PQR, a comparable form required by the
National Futures Association (NFA), in
lieu of filing the Commission’s Revised
Form. Conversely, Form PF will no
longer be accepted in lieu of the Revised
Form, though it will remain a
Commission form.
DATES
: Effective Date: The effective date
for the Final Rule, including the
adoption of the Revised Form, is
December 10, 2020.
Compliance Date: All reporting CPOs
will be required to file the Revised Form
with respect to their operated pools for
the first calendar quarter of 2021, which
ends on March 31, 2021. The deadline
for filing the Revised Form for that
reporting period is sixty days after the
quarter-end, or May 30, 2021.
FOR FURTHER INFORMATION CONTACT
:
Joshua B. Sterling, Director, at 202–418–
6700 or jsterling@cftc.gov; Amanda
Lesher Olear, Deputy Director, at 202–
418–5283 or aolear@cftc.gov; Pamela M.
Geraghty, Associate Director, at 202–
418–5634 or pgeraghty@cftc.gov;
Elizabeth Groover, Special Counsel, at
(202) 418–5985 or egroover@cftc.gov; or
Christopher Cummings, Special
Counsel, at (202) 418–5445 or
ccummings@cftc.gov, Division of Swap
Dealer and Intermediary Oversight,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1151 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. Introduction and Background
A. Overview of Form CPO–PQR, as
Originally Adopted
B. The Proposal
II. Final Rule
A. General Comments and Adopting the
Revised Form
B. The Elimination of Schedules B and C
From the Revised Form
C. Adoption of the Proposed Schedule of
Investments in the Revised Form
D. Retaining the Five Percent Threshold for
Reportable Assets
E. Adding LEI Fields to the Revised Form
F. The Revised Form’s Definitions,
Instructions, and Questions
i. Quarterly Filing Schedule for All CPOs
Completing the Revised Form
ii. Instructions 3 and 5
iii. Instruction 4
iv. Definition of ‘‘Broker’’
v. Elimination of Questions Regarding
Auditors and Marketers
vi. FAQs and Glossary
G. Substituted Compliance
i. NFA Form PQR
ii. Joint Form PF
iii. Substituted Compliance for CPOs of
Registered Investment Companies
H. Compliance Date
III. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
i. Overview
ii. Revisions to the Collection of
Information: OMB Control Number
3038–0005
C. Cost-Benefit Considerations
i. The Elimination of Pool-Specific
Reporting Requirements in Schedules B
and C
ii. The Revised Form
iii. Alternatives
iv. Section 15(a) Factors
D. Antitrust Laws
I. Introduction and Background
Section 1a(11) of the Commodity
Exchange Act (CEA or the Act)
1
defines
the term ‘‘commodity pool operator,’’ as
any person
2
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.
3
CEA section
4m(1) generally requires each person
who satisfies the CPO definition to
register as such with the Commission.
4
CEA section 4n(3)(A) requires registered
CPOs to maintain books and records and
file such reports in such form and
manner as may be prescribed by the
Commission.
5
Following the enactment in 2010 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act)
6
and subsequent joint adoption
with the Securities and Exchange
Commission (SEC) of Form PF (Joint
Form PF) for advisers to large private
funds,
7
the CFTC adopted a new
reporting requirement for CPOs through
Commission regulation at § 4.27, which,
among other things, requires certain
CPOs to report periodically on Form
CPO–PQR.
8
The Commission proposed
this new reporting requirement after
reevaluating its regulatory approach to
CPOs due to the 2008 financial crisis
and the purposes and goals of the Dodd-
Frank Act in light of the then-current
economic environment. Amendments to
the CPO regulatory program adopted at
that time, including Form CPO–PQR
and § 4.27, 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 by
Federal financial regulatory agencies of
similarly-situated entities, such as
dually registered CPOs required to file
Joint 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 the Financial Stability Oversight
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9
Commodity Pool Operators and Commodity
Trading Advisors: Compliance Obligations, 76 FR
7976, 7978 (Feb. 11, 2011) (Form CPO–PQR
Proposal).
10
Id. (‘‘The Commission proposes [Form CPO–
PQR] to solicit information that is generally
identical to that sought through Form PF’’).
Commission regulation at §4.27 further permits the
filing of Joint Form PF in lieu of Commission filing
requirements (i.e., Form CPO–PQR) for CPOs that
are dually registered with the SEC as investment
advisers. 17 CFR 4.27(d).
11
Form CPO–PQR Final Rule, 77 FR 11253–54
(Feb. 24, 2012).
12
Id. at 77 FR 11266–67 (Feb. 24, 2012).
13
Form CPO–PQR Proposal, 76 FR at 7981 (Feb.
11, 2011).
14
Id.
15
Amendments to Compliance Requirements for
Commodity Pool Operators on Form CPO–PQR, 85
FR 26378 (May 4, 2020) (2020 CPO–PQR NPRM).
16
2020 CPO–PQR NPRM, 85 FR at 26380 (May 4,
2020).
17
Id.
18
Id.
19
17 CFR 4.27(b)(1)(i); see also 17 CFR
4.27(b)(2)(i) (establishing that CPOs operating only
pools for which they claim relief under 17 CFR 4.5
or 4.13 are not considered ‘‘reporting persons’’ for
purposes of the Form CPO–PQR filing requirement).
20
See generally 17 CFR part 4 app. A, ‘‘Reporting
Instructions.’’
21
See generally 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 Joint Form PF, of
at least $150 million are required to file Section 1
of Joint 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 Joint
Form PF. Id.
22
As used in the form, AUM refers to the amount
of all assets that are under the control of the CPO.
17 CFR part 4, app. A, ‘‘Definitions of Terms’’
(providing specific definitions for terminology used
in the form, including AUM). The ‘‘Definitions of
Terms’’ section of the form is renamed by this Final
Rule ‘‘Defined Terms’’ in the Revised Form.
23
Id.
24
Id. (defining ‘‘Reporting Period’’). The form
additionally defines, ‘‘Reporting Date,’’ as the last
calendar day of the Reporting Period for which this
Form CPO–PQR is required to be completed and
filed,’’ e.g., ‘‘the Reporting Date for the first
calendar quarter of a year is March 31. Id. For Mid-
Sized and Small CPOs, their Reporting Date would
therefore be December 31. Id.
25
17 CFR part 4, app. A, ‘‘Reporting
Instructions.’’
26
Id. at ‘‘Reporting Instructions,’’ no. 2.
27
Id.
Counsel (FSOC).
9
To that end, the
requirements of Form CPO–PQR were
modeled closely after those of Joint
Form PF.
10
In adopting Form CPO–PQR, the
Commission indicated that the collected
data would be used for several broad
purposes, including: (1) Increasing the
Commission’s understanding of its
registrant population; (2) assessing the
market risk associated with pooled
investment vehicles under its
jurisdiction; and (3) monitoring for
systemic risk.
11
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.
12
In proposing the
majority of the more pool-specific
questions in the form, in particular, the
Commission believed the incoming data
would assist it 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.
13
Although the
Commission recognized that the
requested data may have 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
collected by Form CPO–PQR was both
necessary and appropriately balanced to
assess the risks posed by a single pool,
or a CPO’s operations as a whole.
14
On April 16, 2020, the Commission
unanimously approved, and, on May 4,
2020, subsequently published in the
Federal Register, a notice of proposed
rulemaking (Proposal or NPRM) that
proposed to amend both Commission
§ 4.27 and Form CPO–PQR.
15
In the
Proposal, the Commission stated that,
after seven years of experience with the
form, the Commission was reassessing
the form’s scope and alignment with the
Commission’s current regulatory
priorities.
16
The Commission explained
that its ability to make full use of the
more detailed information collected
under the form has not met the
Commission’s initial expectations.
17
The Commission emphasized that, since
the form’s adoption, it has devoted
substantial resources to developing
other data streams and regulatory
initiatives, which are designed to
enhance the Commission’s ability to
broadly surveil financial markets for
risk posed by all manner of market
participants, including CPOs and their
operated pools.
18
Thus, as further explained in the
discussion that follows, the Commission
has concluded that the form should be
revised to better facilitate the
Commission’s oversight of CPOs and
their operated pools, as well as its
coordination of other Commission data
streams and regulatory initiatives, while
reducing the overall reporting burdens
for CPOs required to file the Revised
Form.
A. Overview of Form CPO–PQR, as
Originally Adopted
Pursuant to § 4.27, any CPO registered
or required to be registered with the
Commission is a ‘‘reporting person,’’
except for a CPO that operates only
pools for which it maintains an
exclusion from the CPO definition
available under § 4.5, and/or an
exemption from CPO registration
available under § 4.13.
19
The amount of
information that a reporting CPO has
been required to disclose on the form
varies depending on the size of the
operator and the quantity and size of the
operated pools.
20
The form, as adopted in 2012,
identifies three classes of filers: Large
CPOs, Mid-Sized CPOs, and Small
CPOs. The thresholds for determining
Large and Mid-Sized CPO status, and
thus their reporting obligations,
generally align with those in Joint Form
PF.
21
A Large CPO is a CPO that had at
least $1.5 billion in aggregated pool
assets under management (AUM)
22
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.
23
Although not defined in the form,
‘‘Small CPO,’’ as used herein, refers to
a CPO that had less than $150 million
in aggregated pool AUM during the
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), whereas, for Small and Mid-Sized
CPOs, the reporting period is the
calendar year.
24
Prior to the Final Rule amendments
adopted herein, Form CPO–PQR
consisted of three schedules: Schedules
A, B, and C.
25
Schedule A requires
reporting CPOs to disclose basic
identifying information about the CPO
(Part 1) and about each of the CPO’s
pools and the service providers they use
(Part 2).
26
Consistent with the
‘‘Reporting Period’’ definitions
described above, Large CPOs submit
Schedule A on a quarterly basis,
whereas all other reporting CPOs submit
it annually.
27
Schedule B requires
additional detailed information for each
pool operated by Mid-Sized and Large
CPOs, in particular regarding each
operated pool’s investment strategy,
borrowings and types of creditors,
counterparty credit exposure, trading
and clearing mechanisms, value of
aggregated derivative positions, and
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28
17 CFR part 4, app. A, Sched. B, ‘‘Detailed
Information About the Pools Operated by Mid-Sized
CPOs and Large CPOs.’’
29
17 CFR part 4, app. A, ‘‘Reporting
Instructions,’’ no. 2.
30
17 CFR part 4, app. A, Sched. C, pt. 1.
31
17 CFR part 4, app. A, Sched. C, pt. 2,
‘‘Information About the Large Pools of Large CPOs.’’
32
As used in Form CPO–PQR, the term ‘‘net asset
value’’ has the same meaning as in §4.10(b). See 17
CFR 4.10(b) (defining ‘‘net asset value’’ as total
assets minus total liabilities, determined in accord
with generally accepted accounting principles, with
each position in a commodity interest transaction
accounted for at a fair market value).
33
As used in the form, 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. 17 CFR part 4, app. A, ‘‘Definitions of Terms.’’
34
17 CFR part 4, app. A, Sched. C, pt. 2,
‘‘Information About the Large Pools of Large CPOs.’’
35
Id.
36
17 CFR part 4, app. A, ‘‘Reporting
Instructions,’’ no. 2.
37
As used in the form, the term ‘‘private fund’’
has the same meaning as the definition of ‘‘private
fund’’ in Joint Form PF. 17 CFR part 4, app. A,
‘‘Definitions of Terms.’’
38
17 CFR part 4, app. A, ‘‘Reporting
Instructions,’’ no. 2.
39
NFA Compliance Rule 2–46 (2017), available at
https://www.nfa.futures.org/rulebook/
rules.aspx?RuleID=RULE%202-46&Section=4
(noting this rule was initially adopted effective
March 31, 2010, and subsequently amended in
2013, 2016, and most recently, 2017). Commission
regulations require each person registered as a CPO
to become and remain a member of at least one
registered futures association, of which there is
currently one, i.e., NFA. 17 CFR 170.17.
40
NFA Compliance Rule 2–46(a). CFTC staff has
previously advised that reporting CPOs should
exclude all pools operated subject to relief provided
in either 17 CFR 4.5 or 4.13 from their Form CPO–
PQR filings, including with respect to any
applicable reporting threshold calculations. CFTC
Division of Swap Dealer and Intermediary
Oversight Responds to Frequently Asked Questions
Regarding Commission Form CPO–PQR (Nov. 5,
2015), available at http://www.cftc.gov/ucm/
groups/public/@newsroom/documents/file/faq_
cpocta.pdf (2015 CPO–PQR FAQs). NFA Form PQR
similarly focuses its data collection efforts on the
listed pools of registered CPO Members. NFA may,
however, use NFA Form PQR to collect information
beyond that collected by the Commission’s Revised
Form. See, e.g., NFA Compliance Rule 2–46(b).
Nothing in the Commission’s Proposal or the Final
Rule restricts NFA’s ability to require reporting
beyond that required by the Commission, provided
that such NFA requirements are consistent with the
CEA and Commission regulations promulgated
thereunder. See 7 U.S.C. 17(j).
41
NFA Compliance Rule 2–46(b).
42
2020 CPO–PQR NPRM.
43
2020 CPO–PQR NPRM, 85 FR at 26381, 26383
(May 4, 2020).
44
2020 CPO–PQR NPRM, 85 FR at 26381 (May 4,
2020).
45
2020 CPO–PQR NPRM, 85 FR at 26381 and
26389 (May 4, 2020) (proposing to amend
§4.27(c)(1) by adding substituted compliance for
this filing requirement with respect to NFA Form
PQR).
46
The Commission received a total of 14
comment letters, four of which were either spam or
otherwise not substantively relevant to the Proposal
in any respect.
47
Comments were submitted by Mr. Chris
Barnard (Barnard) (May 8, 2020); NFA (June 10,
2020); the Alternative Investment Management
Association (AIMA) (June 11, 2020); the Depository
Trust and Clearing Corporation (DTCC) (June 15,
2020); the Global Legal Entity Identifier Foundation
(GLEIF) (June 15, 2020); the Managed Funds
Association (MFA) (June 15, 2020); the Investment
Adviser Association (IAA) (June 15, 2020); the
Securities Industry and Financial Market
Association Asset Management Group (SIFMA
AMG) (June 15, 2020); Ms. Talece Y. Hunter
(Hunter) (June 15, 2020); and the Investment
Company Institute (ICI) (June 15, 2020). The
complete comment file for the 2020 CPO–PQR
NPRM can be found on the Commission’s website.
Comments for Proposed Rule 85 FR 26378 (May 4,
2020), available at https://comments.cftc.gov/
PublicComments/CommentList.aspx?3098.
schedule of investments.
28
Large CPOs
also submit Schedule B on a quarterly
basis; Mid-Sized CPOs are required to
complete and submit Schedule B
annually.
29
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 the aggregate portfolio of pools.
30
Part 2 of Schedule C requires certain
detailed information for each ‘‘Large
Pool’’ the Large CPO operates,
31
where
a ‘‘Large Pool’’ is a commodity pool that
has a net asset value (NAV)
32
individually, or in combination with
any parallel pool structure,
33
of at least
$500 million as of the close of business
on any day during the reporting
period.
34
Specifically, Part 2 requires
information with respect to each Large
Pool the Large CPO operates during the
given reporting period; this section of
the form elicits 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.
35
Large CPOs complete and file Schedule
C on a quarterly basis: This filing
includes Part 1 of Schedule C, as well
as a separate Part 2 for each Large Pool
that a Large CPO operates during the
reporting period.
36
If a CPO is also
registered with the SEC as an
investment adviser, and is therefore
required to file Joint Form PF regarding
its advisory services to private funds,
37
the CPO is deemed to have satisfied its
Schedule B and C filing requirements,
provided that the CPO completes and
files the referenced sections of Joint
Form PF with respect to the pool(s)
operated during the reporting period.
38
In addition to Joint Form PF and Form
CPO–PQR, in 2010, NFA adopted and
implemented its own NFA Form PQR to
elicit data in support of NFA’s risk-
based examination program for its CPO
membership.
39
Pursuant to NFA
Compliance Rule 2–46, all CPO NFA
members, which includes all CPOs
registered with the Commission, must
file NFA Form PQR on a quarterly basis
with respect to all of their operated
pools.
40
NFA accepts the filing of Form
CPO–PQR (but not Joint Form PF) in
lieu of filing NFA Form PQR for any
quarter in which a Form CPO–PQR
filing is required under § 4.27.
41
Consequently, dually registered CPO-
investment advisers that file Joint Form
PF in lieu of a Form CPO–PQR filing,
consistent with § 4.27(d), as it reads
prior to these Final Rule amendments,
are also required to file NFA Form PQR
with NFA quarterly.
B. The Proposal
As noted above, the Commission
published the NPRM on May 4, 2020,
proposing substantial revisions to Form
CPO–PQR, as well as several
amendments to § 4.27.
42
Specifically,
the Commission proposed to eliminate
the requirement to complete and submit
Schedules B or C of the form, with the
exception of the Pool Schedule of
Investments (PSOI) (currently, question
6 of Schedule B). The Commission
proposed to retain the questions set
forth in current Schedule A with certain
amendments, notably the addition of
questions regarding LEIs, and the
deletion of questions regarding pool
marketers and auditors.
43
Thus, the
Commission proposed the Revised Form
consisting of a revised Schedule A, plus
the PSOI and the instructions and
definitions in the current form that
remain relevant.
44
The Proposal
required all reporting CPOs to file the
Revised Form on a quarterly basis,
regardless of AUM or size of operations,
and such reporting CPOs would be
permitted to file NFA Form PQR in lieu
of the Revised Form.
45
The Proposal
included an amendment to § 4.27(d) that
would eliminate the substituted
compliance currently available for
dually registered CPO-investment
advisers required to file Joint Form PF
with respect to their operated private
funds, while retaining Joint Form PF as
a Commission form. The comment
period for the Proposal expired on June
15, 2020, and the Commission received
ten relevant
46
comment letters: Two
from individuals; one from a registered
futures association; and seven from
industry professional and trade
associations.
47
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48
See, e.g., DTCC, at 2.
49
ICI, at 4 (noting that ‘‘the Proposal would
significantly reduce the reporting burdens to which
registered fund CPOs are currently subject’’).
50
Hunter, at 1; AIMA, at 2; SIFMA AMG, at 2;
Barnard, at 1.
51
NFA, at 1.
52
MFA, at 1–2.
53
SIFMA AMG, at 2.
54
AIMA, at 2–3 (stating also that AIMA
welcomed the Proposal, instead of ‘‘incremental
and non-transformative change,’’ and was ‘‘in
favour of making better use of data obtained
through other reporting obligations’’).
55
Consistent with past Commission staff
guidance, ‘‘operated pools,’’ as used in this
document, means those pools for which a CPO is
required to be registered with the Commission.
56
2020 CPO–PQR Proposal, 85 FR at 26381–84
(May 4, 2020).
57
2020 CPO–PQR NPRM, 85 FR at 26381 (May 4,
2020).
58
2020 CPO–PQR NPRM, 85 FR at 26380 (May 4,
2020).
59
2020 CPO–PQR NPRM, 85 FR at 26381 (May 4,
2020).
60
2020 CPO–PQR NPRM, 85 FR at 26382 (May 4,
2020).
61
E.g., IAA, at 3–4; NFA, at 1–2.
62
IAA, at 4.
63
ICI, at 6.
64
SIFMA AMG, at 4.
65
SIFMA AMG, at 4–5.
66
SIFMA AMG, at 6 (noting that these threshold
calculations for CPO and pool size have proved
difficult to practically apply and calculate).
67
2020 CPO–PQR NPRM, 85 FR at 26381 (May 4,
2020).
II. Final Rule
A. General Comments and Adopting the
Revised Form
The comments that the Commission
received were, in general, strongly
supportive of the Proposal.
48
Commenters largely agreed with the
proposed amendments and viewed the
proposal of the Revised Form as a
‘‘helpful improvement to the current
system.’’
49
Multiple commenters stated
that the Proposal, if adopted, would
simplify CPO reporting requirements,
significantly reduce filers’ reporting
burdens, increase the regulatory
integrity and utility of the data collected
by the Revised Form, and serve as a
critical step in the development of a
‘‘holistic market surveillance program,’’
with respect to registered CPOs and the
pools they operate.
50
Similarly, NFA
stated its support of ‘‘the Commission’s
efforts to streamline and simplify the
reporting requirements for CPOs,’’ and
its belief that ‘‘the [P]roposal will satisfy
the Commission’s goal of reducing
reporting requirements in a manner that
continues to facilitate effective oversight
of CPOs and the pools they operate.’’
51
Although MFA stated its preference
for a consolidated form for both SEC
and CFTC filings with respect to pooled
investment vehicles and their operators
or advisers, MFA nonetheless expressed
its strong support for the Proposal’s
Revised Form.
52
Similarly, SIFMA AMG
stated that the Proposal is well-aligned
with the Commission’s intended
purpose for it, and subject to
recommended revisions, strongly
recommended it be adopted.
53
Encouraged by the Commission’s
proposed amendments eliminating
significant pool-specific sections of the
form, AIMA requested that the
Commission consider further reducing
the scope of the Revised Form, if at all
possible.
54
After considering the public
comments received, the Commission
has determined to adopt the Revised
Form and the amendments to § 4.27,
largely as proposed, in furtherance of its
regulatory goals with respect to
registered CPOs and their operated
pools,
55
for the reasons it explained in
the Proposal.
56
Today’s Final Rule
constitutes the first of several steps in
the Commission’s ongoing reassessment
of Form CPO–PQR, the substantive
information it seeks to collect, and the
form and manner in which the
Commission collects and uses that
information.
B. The Elimination of Schedules B and
C From the Revised Form
In proposing to eliminate a majority of
the pool-specific reporting requirements
in Schedules B and C of Form CPO–
PQR, the Commission observed that,
challenges with the data collected in
Schedules B and C, combined with the
resource constraints of broader
Commission priorities, have frustrated
the Commission’s ability to fully realize
its vision for this data collection.
57
As
described above, the eliminated data
elements in Schedules B and C include
detailed pool-specific information, asset
liquidity and concentration of positions,
clearing relationships, risk metrics,
financing, and investor composition.
58
In explaining the proposed rescission of
Schedules B and C, the Commission
stated that its ability to identify trends
across CPOs or pools using Form CPO–
PQR data has been substantially
challenged, due to the post hoc nature
of the previous filings and the
substantial amount of flexibility the
Commission permitted for CPOs
completing the form.
59
In the Proposal,
the Commission noted that certain of its
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.
60
The proposed removal of Schedules B
and C was broadly supported by
commenters.
61
For instance, IAA
supported the Commission’s efforts to
streamline the process, stating, ‘‘We
appreciate the CFTC tailoring the
regulatory reporting requirements for
CPOs to limit data collection that the
Commission will make use of[,] and
eliminating the more detailed
information in Form CPO–PQR that has
not been helpful for the CFTC’s
oversight purposes.’’
62
Furthermore, ICI
concurred with the Commission that the
agency’s limited resources should not be
spent on trying to make use of the
‘‘voluminous and very specific pool-
level data sought in Schedules B and
C.’’
63
Expressing support for the
elimination of Schedules B and C, as
well as the retention of a revised PSOI
for each pool, SIFMA AMG praised the
Commission for recognizing ‘‘lessons
learned’’ from seven years of experience
with the form and the data it has
elicited.
64
SIFMA AMG described the
Proposal as a demonstration of the
CFTC’s consideration of the utility of
the data currently collected by the form,
and balancing that against the
successful use of other Commission data
streams, which were developed after the
form was initially adopted.
65
In
addition, SIFMA AMG strongly
supported the adoption of a streamlined
Revised Form for all CPOs and their
pools, thereby eliminating the CPO and
pool threshold calculations that dictated
the scope and burden of each CPO’s
Form CPO–PQR filing.
66
Due to the logistical and timing
difficulties the Commission explained
in detail in the NPRM,
67
the
Commission has determined to forego
the collection of the detailed
information requested by Schedules B
and C of Form CPO–PQR, in part,
because the Commission was not able to
fully incorporate the resulting data set
into its oversight program for registered
CPOs and their operated pools. The
Commission acknowledges the strong
support from commenters with respect
to this particular amendment, and
believes that, in conjunction with other
amendments explained below, the
Commission will receive more complete
and usable data regarding reporting
CPOs’ pool operations due to the more
targeted data collected in the Revised
Form. Accordingly, Schedules B and C,
along with all references to the
thresholds associated therewith, have
been removed in their entirety from the
Revised Form adopted by the Final
Rule.
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2020 CPO–PQR NPRM, 85 FR at 26384 (May 4,
2020).
69
IAA, at 4; ICI, at 6; NFA, at 1–2; MFA, at 3.
70
See infra pt. II.G.i for additional discussion on
permissible substituted compliance for §4.27 with
respect to NFA Form PQR.
71
NFA, at 2 (discussing how the 2010 Schedule
of Investments elicits the information necessary for
NFA’s risk assessment purposes). See also ICI, at 4;
MFA, at 4. ICI further emphasized that the overall
success of the Proposal’s revisions to Form CPO–
PQR will depend on whether the resulting dataset
is appropriately calibrated to the Commission’s
regulatory interests and limited to data the
Commission will employ in regulating CPOs and
their commodity pools. ICI, at 4.
72
NFA, at 2 (concluding that its 2010 Schedule
of Investments ‘‘elicits the information necessary
for both the CFTC’s and NFA’s needs’’).
73
IAA, at 5. MFA also supported this alignment
and strongly advocates for consistency between the
Schedules of Investment in the Revised Form and
NFA Form PQR. MFA, at 3–4.
74
‘‘Options trading firm blows up amid natural
gas volatility,’’ Financial Times (Nov. 19, 2018),
available at https://ft.com/content/b7c525f6-ec44/
11e8/89c8/d36339d835c0; ‘‘The Shine Is Off,’’ Slate
(June 9, 2013), available at https://www.slate.com/
business/2013/06/gold-bubble-paranoid-investors-
pushed-gold-to-1900-an-ounce-in-2011-but-the-
bubble-has-burst; ‘‘Bond investors say some energy
companies ‘will not survive’ oil rout slamming
markets,’’ Market Watch (Mar. 10, 2020), available
at https://www.marketwatch.com/story/bond-
investors-say-some-energy-companies-will-not-
survive-oil-rout-slamming-markets-2020-03-09;
‘‘Global stocks, oil prices, and government bonds
tumble,’’ Financial Times (Mar. 18, 2020), available
at https://www.ft.com/content/1b1b47d4-68bd-
11ea-a3c9/1fe6fedcca75; ‘‘Oil plunges into negative
territory for the first time ever as demand
evaporates,’’ Business Insider (Apr. 20, 2020),
available at https://markets.businessinsider.com/
commodities/news/us-crude-oil-wti-falls-to-21-year-
low-1029106364#.
75
Id.
76
‘‘Gold prices settle at 1-week low as U.S. stock
market tumbles,’’ MarketWatch (Sept. 3, 2020),
available at https://www.marketwatch.com/story/
gold-heads-for-back-to-back-loss-amid-vaccine-
hope-us-dollar-strength-2020-09-03; ‘‘Oil sinks with
equities on wavering hopes for demand pickup,’’
Bloomberg (Sept. 3, 2020, updated Sept. 4, 2020),
available at https://www.bloomberg.com/news/
articles/2020-09-03/oil-extends-biggest-weekly-
drop-since-june-as-demand-woes-return; ‘‘U.S. oil
prices settle at lowest in nearly a month as supplies,
output log sharp but temporary hurricane-related
drop,’’ Market Watch (Sept. 2, 2020), available at
https://www.marketwatch.com/story/oil-prices-
lifted-by-lackluster-bounce-in-opec-crude-output-
inventory-fall-2020/09/02; ‘‘Oil prices continue to
slide as U.S. data feeds fuel demand worry,’’
Reuters (Sept. 2, 2020), available at https://
www.reuters.com/article/us-global-oil/oil-prices-
continue-to-slide-as-us-data-feeds-fuel-demand-
worry-idUSKBN25U04D.
C. Adoption of the Proposed Schedule
of Investments in the Revised Form
One of the specific questions posed by
the Commission in the Proposal was:
Should the Commission consider
amending the Schedule of Investments
to align with the simpler schedule that
appeared in NFA Form PQR in 2010?
68
The Commission received several
comments on the content of the
proposed PSOI, including multiple
recommendations that the Commission
adopt a schedule in the Revised Form
that aligned with the former Schedule of
Investments originally adopted by NFA
in 2010 for its NFA Form PQR (2010
Schedule of Investments).
69
The 2010
Schedule of Investments is less detailed
than the PSOI currently in use by both
Form CPO–PQR and NFA Form PQR.
70
Several of the commenters argued that
the detailed information required by the
proposed PSOI is no longer necessary in
the broader context of the Revised Form.
For instance, NFA, in a comment that
was supported by both MFA and ICI,
supported aligning with the 2010
Schedule of Investments because a
‘‘more streamlined schedule will
significantly alleviate filing burdens on
CPOs without negatively impacting the
usefulness of the information that is
collected.’’
71
NFA explained that it does
not need the more granular information
in the PSOI, and that this granularity
has not, in NFA’s experience, improved
their analysis, in part, because ‘‘very
few CPOs include balances on a
significant number of line items set
forth in the current schedule.’’
72
IAA
also expressed its support, stating that
the specific data fields in the PSOI
should be aligned with that of NFA
Form PQR.
73
The Commission acknowledges and
understands commenters’ arguments
supporting a more narrowly focused
PSOI in the Revised Form. Nevertheless,
the Commission has determined not to
make material revisions at this time.
Events in the bond and energy markets,
both recently and in its past experience,
have reinforced the Commission’s
understanding of the
interconnectedness of financial markets,
and emphasized the importance of
understanding how CPOs are positioned
vis-a
`-vis their counterparties and the
economy as a whole.
74
Moreover,
incorporating a PSOI that is aligned
with the 2010 Schedule of Investments,
particularly the 10% asset threshold
discussed below, in the Revised Form
results in a material loss of information
from reporting CPOs on their operated
pools’ alternative investment or
derivatives positions, which are the
primary focus of the Commission’s
jurisdiction. For instance, the
Commission notes that the 2010
Schedule of Investments lacks specific
line items for crude oil, natural gas, and
some precious metals like gold, all of
which have been subject to significant
volatility.
75
At this time, the Commission believes
that reducing the amount of information
collected with respect to multiple asset
classes, particularly those that are under
the Commission’s primary jurisdictional
mandate,
76
is premature. The resulting
diminished dataset would provide the
Commission an insufficient view into
the actual holdings of operated
commodity pools in markets subject to
the Commission’s oversight, which, in
turn, potentially undermines the
Commission’s assessment of the risk
posed by CPOs and their operated pools
within the commodity interest markets
and their vulnerabilities when faced
with challenging market conditions.
This information is currently essential
to the Commission’s ability to identify
CPOs and pools with whom the
Commission should engage more deeply
depending on market events, especially
in times of unpredictable market
volatility. Therefore, the Commission
has decided to collect the more detailed
PSOI, as it continues to reassess its data
needs in this space.
In the Commission’s experience,
commodity interest markets change over
time, as do the Commission’s own
technological applications, surveillance
capabilities, and access to real-time data
streams, and thus, require the ongoing,
careful review of the appropriateness of
existing regulatory approaches.
Accordingly, the Commission hereby
instructs its staff to evaluate the ongoing
utility of the PSOI information in the
Revised Form, including comparing it to
the 2010 Schedule of Investments,
within 18–24 months following the
Final Rule’s Compliance Date. As part of
its review, Commission staff should
consider whether or not it is appropriate
to adopt the 2010 Schedule of
Investments, in light of such utility.
After completing this review, and taking
into consideration the Commission’s
current regulatory needs, the
Commission expects its staff to develop
recommendations or a proposed
rulemaking for the Commission’s further
review to effectuate staff’s findings.
In addition, as part of this review,
Commission staff should continue to
explore the use of data available from
designated contract markets, swap
execution facilities, and swap data
repositories—i.e., existing sources of
transaction and position data—and its
application to effecting robust oversight
of CPOs and commodity pools, as
compared to the information received
from Revised Form CPO–PQR. In
addition, the Commission expects its
staff to continue engaging with their
counterparts at the SEC during this 18–
24 month period regarding potential
modifications to Joint Form PF, which
should inform further revisions to
Revised Form CPO–PQR.
Consistent with the views expressed
by other commenters, NFA stated its
belief that the more limited dataset
collected on the 2010 Schedule of
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NFA, at 2.
78
IAA, at 5; MFA, at 4; SIFMA, at 14.
79
MFA, at 4.
80
SIFMA AMG, at 14.
81
SIFMA AMG, at 14 (describing such an analysis
as ‘‘weighing the difficulty of certain CPOs to
provide data for the more granular sub-categories
compared with the usefulness of such data for the
Commission, with a focus on categories of assets
where the Commission does not have a specific
regulatory interest or otherwise would have limited
use for such detail’’). See also IAA, at 5 (questioning
the relevance and necessity of certain line items in
the proposed PSOI); MFA, at 6–14 (providing line
edits to the proposed PSOI, and recommending the
deletion of multiple asset classes).
82
In concluding that losing Form CPO–PQR data
for 22% of its total filing population was material,
staff was guided by the SEC’s Staff Accounting
Bulletin 99, which addresses accounting materiality
thresholds. Materiality, SEC Staff Accounting
Bulletin No. 99, 64 FR 45150 (Aug. 19, 1999),
available at https://www.sec.gov/interps/account/
sab99.htm.
83
2020 CPO–PQR NPRM, 85 FR at 26378 (May 4,
2020).
84
2020 CPO–PQR NPRM, 85 FR at 26383 (May 4,
2020) (anticipating that the inclusion of LEIs would
greatly facilitate the aggregation of data from
commodity pools under different levels of common
control).
85
2020 CPO–PQR NPRM, 85 FR at 26384 (May 4,
2020).
86
DTCC, at 2; SIFMA AMG, at 6; GLEIF, at 1. See
also Hunter, at 1, and Barnard, at 1. GLEIF noted
further that standardizing the LEI requirement
would also contribute to the harmonization of rules
and standards across regulatory regimes. GLEIF, at
2.
Investments would be sufficient for both
NFA’s and the Commission’s
purposes.
77
The Commission notes,
however, that direct oversight of
reporting CPOs and their operated pools
is only one of the uses of the data
collected by the Revised Form’s PSOI.
This information is also useful to the
Commission in developing its
understanding of the commodity
interest markets more broadly,
including how various asset classes are
being utilized by reporting CPOs and
their operated pools. Although there
may be certain subcategories of asset
classes that have not had many, if any,
responses over the past six reporting
periods, that does not mean that such
subcategories of asset classes may not
become more widely used in the future,
or that a pool’s exposure to asset classes
that are currently less widely utilized
would not be useful in overseeing the
operations of reporting CPOs and their
pools going forward. Eliminating
questions due solely to a lack of past
responses seems to presume that the
operations and pool trading activity of
reporting CPOs will remain static going
forward. The Commission knows from
its direct regulatory experience in
overseeing CPOs that such a
presumption is false because these
registrants and their pools exhibit high
levels of variability and dynamism in
their investment strategies.
D. Retaining the Five Percent Threshold
for Reportable Assets
Aligning the Revised Form’s PSOI
with the 2010 Schedule of Investments
would include increasing the threshold
for reportable assets of a pool from 5%
of a pool’s NAV to 10%, which multiple
commenters specifically addressed and
supported.
78
As discussed above, MFA
also requested the Commission align its
PSOI with NFA’s 2010 Schedule of
Investments, and increase the reportable
asset threshold from 5% to 10%.
79
SIFMA AMG stated that revising the
PSOI in this manner would greatly
reduce or eliminate the burden on CPOs
to provide information on pool assets or
investments that are, ‘‘either nominal or
so minimal they do not affect the daily
risk of a CPO.’’
80
As an alternative to
adopting the 2010 Schedule of
Investments, SIFMA AMG also would
support a more holistic analysis by the
Commission of the proposed PSOI:
rather than simply doubling the
percentage threshold for reportable
assets, SIFMA AMG argued that the
Commission should carefully review the
proposed PSOI, weigh the utility of the
asset sub-categories, and eliminate those
deemed to be unnecessary or not
implicating the Commission’s regulatory
interests.
81
Upon consideration of the comments,
and consistent with the overall PSOI
analysis above, the Commission is
declining to increase the threshold for a
pool’s reportable assets from 5% to 10%
at this time. The Commission has
reviewed data from past Form CPO–
PQR filings, and concludes that, if it
were to raise the threshold from 5% to
10%, the Commission would lose a
material portion of the data that it has
been receiving regarding pool positions
in derivatives and alternative
investments. Specifically, the
Commission reviewed the first level of
subcategory data within the seven
headings of asset classes from the 2019
year-end Form CPO–PQR filings. There
was a total of 5,574 PSOIs filed, with
1,240 of those filings reporting at least
one balance that was between 5% and
10% of NAV, which means that 22% of
the total filed PSOIs reported an asset
balance that would be lost to the
Commission, if the Commission
increased the reporting threshold to
10%.
Looking at the data further, the
Commission found that, of those 1,240
PSOIs reporting at least one asset
between 5 and 10% of a pool’s NAV,
660 of them reported balances in either
alternative investments or derivatives—
asset classes in which the Commission
retains a significant regulatory interest.
Those 660 PSOIs constitute 53% of all
PSOIs reporting an asset as 5–10% of
the pool’s NAV, and amount to
approximately 12% of the total PSOI
population. Losing data on 12% of its
total PSOI filings by reporting CPOs
regarding alternative investment or
derivatives positions, which are the
primary focus of the Commission’s
jurisdiction, is a material loss, because
it would provide the Commission with
an incomplete picture of the actual
holdings of a pool in markets subject to
the Commission’s oversight, which
could undermine the Commission’s
assessment of the market risk posed by
CPOs and their operated pools.
82
This is
of particular importance to the
Commission given the recent
unprecedented market conditions
discussed above. Accordingly, the
Revised Form adopted herein retains the
5% asset reporting threshold, and the
Commission reiterates its direction to
Commission staff to evaluate the
ongoing utility of the PSOI information
in the Revised Form, within 18–24
months of the Compliance Date for the
Final Rule.
E. Adding LEI Fields to the Revised
Form
The Commission also proposed
adding fields to the Revised Form
requesting LEIs for reporting CPOs and
their operated pools that are otherwise
required to have them, due to their
activity in the swaps market.
83
The
Commission emphasized in the
Proposal that the inclusion of existing
LEIs within the smaller dataset 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 and may permit better
use of other data to illuminate the risk
inherent in pools and pool families.
84
Specifically, the NPRM queried, Should
the Commission include LEIs on
Revised Form CPO–PQR? Why or why
not?
85
Commenters supported the inclusion
of LEIs because of their low cost, ability
to facilitate standardization across
multiple data streams and generally
enhance reporting, and ‘‘their risk
management capabilities.’’
86
SIFMA
AMG also supported the addition of
questions on LEIs, stating that it
understood that ‘‘[requiring LEIs in the
Revised Form CPO–PQR] is the key to
integrating the information collected in
multiple data streams,’’ and would
make information collected by the
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SIFMA AMG, at 2.
88
GLEIF, at 1 (stating that the Proposal’s current
LEI requirement would not allow the Commission
to aggregate all derivatives transactions by pools
under common control); DTCC, at 2.
89
GLEIF, at 1.
90
DTCC, at 2.
91
DTCC, at 2–3 (discussing the average costs
associated with obtaining and maintaining an LEI:
average cost for an LEI is $111, and the renewal fee
is $91; the annual one-time cost for all CPOs
without an LEI would total $64,828; the annual
renewal fee combined for all 1326 registered CPOs
would total $120,666). Neither DTCC nor GLEIF
provided any cost estimates with respect to
expanding the LEI requirement to all operated pools
or to all of a reporting CPO’s service providers.
92
MFA, at 3.
93
MFA, at 3.
94
Id.
95
2020 CPO–PQR NPRM, at 85 FR 26382 (May 4,
2020).
96
See infra Form CPO–PQR, ‘‘Reporting
Instructions,’’ no. 9.
97
Swap Data Recordkeeping and Reporting
Requirements, approved by the Commission on
September 17, 2020. Publication in the Federal
Register is pending.
98
17 CFR 1.3, ‘‘registered entity’’ (including, inter
alia, designated contract markets, swap execution
facilities, derivatives clearing organizations, and
swap data repositories, in the ‘‘registered entity’’
definition).
99
Swap Data Recordkeeping and Reporting
Requirements, approved by the Commission on
September 17, 2020. Publication in the Federal
Register is pending.
Revised Form ‘‘much easier to combine
into a holistic surveillance program’’ for
registered CPOs and their operated
pools.
87
Citing a list of benefits
associated with LEIs, GLEIF and DTCC
advocated for further expanding the LEI
requirement to all reporting CPOs and
pools, instead of only requiring them
from entities that currently have them.
88
GLEIF also requested the Commission
consider two specific recommendations
regarding LEIs: (1) Adopting a
requirement that only LEIs that are
maintained and duly renewed would
satisfy this reporting obligation in the
Revised Form; and (2) requiring LEIs for
all reporting entities submitting the
Revised Form, as well as for a reporting
CPO’s miscellaneous service providers,
like a third-party administrator, broker,
trading manager, and/or custodian.
89
DTCC argued that expanding the LEI
requirement to cover all reporting CPOs
and all of their operated pools would
allow the Commission to obtain a more
complete picture of pool activity across
all derivatives transactions, rather than
just with respect to swaps.
90
DTCC also
provided specific cost estimates for LEI
acquisition, renewal, and maintenance,
positing that these costs would not be a
significant burden on CPOs. Moreover,
DTCC argued that expanding the
requirement could instead ease CPOs’
reporting burden, ‘‘through the
standardization of a common
identifier,’’ i.e., an LEI for each reporting
entity and each operated pool, and
further facilitate the synthesis of CPO
and pool data.
91
MFA suggested that the Commission
collect LEI data separately from the
Revised Form for purposes of protecting
highly confidential information in these
filings from potential cyber breaches.
92
Specifically, MFA recommended that
the Commission incorporate
alphanumeric identifiers to conceal the
identities of reporting CPOs in the
Revised Form, and that the Commission
separate this data to mitigate potential
breaches and enhance protections for
collected registrant data.
93
According to
MFA, registered CPOs should be
permitted to file their LEIs for the
Revised Form in a separate submission,
such that the LEIs and identifying
information of the CPO and its pools are
separated from the confidential
information the Revised Form otherwise
collects.
94
The Commission is adopting this
provision as proposed. The LEI fields
included in the Revised Form should
provide significant regulatory benefits,
particularly with respect to the
Commission’s stated goal of developing
a holistic surveillance program for
registered CPOs and their operated
pools.
95
At this time, the Commission
will not require CPOs that do not
currently have LEIs to obtain them
solely for the purposes of reporting on
the Revised Form.
96
The Commission’s
regulations currently only require
entities to obtain LEIs if they are
engaged in swaps transactions.
Specifically, the Commission’s
regulations regarding swap data
reporting, which were amended in
September 2020, require CPOs or
commodity pools that are counterparties
to swaps to use LEIs in all swap data
recordkeeping and reporting.
97
The
Commission would therefore expect that
any CPO or commodity pool entering
into swap transactions would have an
LEI. Conversely, if a reporting CPO and
its pools do not engage in swap
transactions, they would not be required
to have LEIs. Moreover, futures market
participants are not required to have
LEIs generally, and as such, LEIs are not
collected by the designated contract
markets or derivatives clearing
organizations with respect to futures
transactions. Therefore, imposing such a
requirement on reporting CPOs and
their pools that do not engage in swaps
would not assist the Commission in
utilizing the other data streams available
to it regarding futures trading activity.
Additionally, allowing only those
LEIs that are maintained and duly
renewed to satisfy the reporting
requirement in the Revised Form runs
counter to the Commission’s stated
purpose of the Revised Form. Currently,
swap dealers and other registered
entities
98
are the only Commission
registrants required to maintain and
renew their LEIs.
99
Notably, CPOs and
their operated pools are not among
those entities. Additionally, because
CPOs and their operated pools are not
required to obtain, maintain, or renew
LEIs to participate in the futures market,
the Commission believes that imposing
such a requirement solely for Form
CPO–PQR reporting purposes would
not, at this time, advance the
Commission’s goal of monitoring CPOs
and their operated pools for market and
systemic risk.
The Commission notes that this
approach to LEIs in the Final Rule does
not preclude expanding the LEI
requirement in the Revised Form in the
future. As noted herein, and in the
Proposal, the Final Rule is intended to
leverage the other data developed by the
Commission as they currently exist. The
Commission currently does not require
LEIs to participate in the commodity
interest markets beyond the swaps
market; however, in the future, the LEI
requirement could be expanded to other
commodity interest asset classes. If that
should happen, reporting CPOs and
their pools would be required to report
those LEIs on the Revised Form as well.
As LEIs become more ubiquitous in the
market, and as more CPOs obtain and
use them in operating their pools, the
Commission anticipates that there will
be a corresponding increase of reported
LEIs on the Revised Form.
With respect to commenters’ concerns
about cybersecurity, determining the
feasibility of filing LEI information
separately from the Revised Form would
hinder the Commission’s ability to
adopt the Final Rule in a timely manner.
The Commission believes that such
delay serves neither its own regulatory
interests nor the interests of
Commission registrants required to file
Form CPO–PQR. In arriving at this
conclusion, the Commission weighed
the benefits of adopting Revised Form
CPO–PQR sooner, including the
opportunity to begin fully incorporating
the Revised Form’s dataset into the
Commission’s oversight program for
registered CPOs and their operated
pools, as well as operational efficiencies
for the Revised Form’s filers, against
whether the Commission should modify
how data on the Revised Form is
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100
See, e.g., the Federal Information Security
Modernization Act of 2014, 44 U.S.C 3551, et seq.
(Dec. 18, 2014).
101
‘‘Office of the Inspector General Semiannual
Report to Congress: October 1, 2019-March 31,
2020,’’ CFTC Office of the Inspector General, p. 8
(Mar. 31, 2020), available at https://www.cftc.gov/
media/3946/oig_reporttocongress033120/download.
102
‘‘Federal Information Security Modernization
Act of 2014 Annual Report to Congress: Fiscal Year
2019,’’ Office of Management and Budget. Although
DHS has not yet published the Fiscal Year 2019
report to its website, the Commission notes that it
received similar ratings in fiscal year 2018. See
‘‘Federal Information Security Modernization Act of
2014 Annual Report to Congress: Fiscal Year 2018,’’
Office of Management and Budget, p. 49 (Aug. 23,
2019), available at https://www.whitehouse.gov/wp-
content/uploads/2019/08/FISMA/2018/Report-
FINAL-to-post.pdf. The CSF, developed by the
National Institute of Standards and Technology,
includes five function areas: ‘‘Identify, Protect,
Detect, Respond, and Recover.’’ Id. at 17. A finding
of ‘‘managed and measurable,’’ is the fourth highest
of five levels and means, ‘‘[q]uantitative and
qualitative measures on the effectiveness of
policies, procedures, and strategies are collected
across the organization and used to assess them and
make necessary changes.’’ Id. at 31. Per the IG
Reporting Metrics, a finding of ‘‘managed and
measurable’’ ‘‘is considered to be effective at the
domain, function, and overall level[s].’’ Id. at 32.
103
2020 CPO–PQR NPRM, 85 FR at 26380 (May
4, 2020).
104
2020 CPO–PQR NPRM, 85 FR at 26378 (May
4, 2020).
105
2020 CPO–PQR NPRM, 85 FR at 26396 (May
4, 2020).
106
2020 CPO–PQR NPRM, 85 FR at 26391 (May
4, 2020).
107
2020 CPO–PQR NPRM, 85 FR at 26384 (May
4, 2020).
108
NFA, at 1.
109
SIFMA AMG, at 4.
110
2020 CPO–PQR NPRM, 85 FR at 26391 (May
4, 2020) (proposing Instruction 3 of the Revised
Form).
111
2020 CPO–PQR NPRM, 85 FR at 26391 (May
4, 2020).
collected. That analysis also included
an assessment of the state of the
Commission’s current data security
protocols.
With respect to the Commission’s data
security protocols, it is currently in full
compliance with all of the relevant
statutes relating to information security
and protection.
100
The Commission’s
Office of Inspector General (OIG) audits
the agency’s security program annually,
and as of the 2019 audit, OIG identified
no material weaknesses and made no
significant findings. Moreover, the OIG
rated the Commission’s security
program as ‘‘effective.’’
101
In addition to
the OIG review, the U.S. Department of
Homeland Security (DHS) also assesses
the Commission on a semiannual basis,
and DHS’ most recent assessment of the
CFTC’s security program for compliance
with the Cybersecurity Framework
(CSF), as required by the Office of
Management and Budget, resulted in
ratings of ‘‘managed and measurable’’ in
all five functions of the CSF.
102
In the Commission’s opinion,
delaying the adoption of the Final Rule
and of Revised Form CPO–PQR,
specifically in order to separately collect
a filing CPO’s LEIs, would lead to an
undesirable regulatory outcome. This
approach would delay the adoption of
Revised Form CPO–PQR significantly, if
not indefinitely, thereby depriving filing
CPOs of much-anticipated compliance
relief, for the purpose of addressing
arguably unwarranted (given the recent
objective and favorable evaluations of
this agency’s information security and
data protection protocols cited above)
data security concerns only applicable
to a limited portion of the Form CPO–
PQR filing population. The Commission
finds that the outcome of this approach
would undermine and run counter to
the Commission’s stated purposes in the
Proposal, i.e., revising Form CPO–PQR
in a way that supports the Commission’s
ability to exercise its oversight of CPOs
and their operated pools, while
reducing reporting burdens for market
participants.
103
Taking all of this into
account, the Commission concludes that
adopting Revised Form CPO–PQR at
this time, absent any significant
modification as to how the information,
including LEIs, is submitted, is
appropriate. In conjunction with
Commission staff’s review of the
Revised Form’s PSOI within 18–24
months of this Final Rule’s Compliance
Date, the Commission further directs its
staff to determine the feasibility,
necessity, and advisability of separating
a CPO’s LEIs from the rest of Revised
Form CPO–PQR in that same time
frame. Lastly, the Commission remains
committed to devoting significant
resources to ensure its internal data
security procedures are aligned with, or
surpass, industry best practices, as they
develop over time.
F. The Revised Form’s Definitions,
Instructions, and Questions
As discussed above, the Commission
also proposed several amendments to
the Instructions of the Revised Form.
104
For instance, the Commission proposed
to require all reporting CPOs to file the
Revised Form quarterly by redefining
‘‘Reporting Period,’’ to mean a calendar
quarter.
105
Additionally, the
Commission proposed significant
changes to Instructions 2 and 3, in
connection with deleting Form CPO–
PQR’s Schedules B and C, as well as the
elimination of terms related to the
various thresholds used for those
schedules, i.e., Mid-Sized CPO, Large
CPO, and Large Pool.
106
The
Commission further queried in the
Proposal: Are there ways the
Commission could further clarify and
refine the reporting instructions for
completing Revised Form CPO–PQR in
order to provide CPOs with greater
certainty that they are completing the
form correctly?
107
i. Quarterly Filing Schedule for All
CPOs Completing the Revised Form
The simplified, uniform, quarterly
filing schedule proposed for the Revised
Form with respect to all reporting CPOs
and their operated pools received broad
support from commenters. NFA
generally expressed strong support for
the Commission’s efforts to streamline
and simplify the reporting regime for
reporting CPOs, including the quarterly
filing schedule, and stated its belief that,
‘‘the proposal will satisfy the
Commission’s goal of reducing reporting
requirements in a manner that continues
to facilitate effective oversight of CPOs
and the pools that they operate.’’
108
SIFMA AMG also expressed its support
to increase the filing frequency of the
Revised Form for all reporting CPOs
because of the simplified filing schedule
across all CPOs, regardless of size, and
the consistency in filing schedules
between the Revised Form and NFA
Form PQR.
109
In adopting the changes as proposed,
the Commission still favors employing a
simpler, more uniform filing
requirement for all reporting CPOs. This
straightforward filing structure and
schedule should facilitate compliance
and reporting under § 4.27, thereby
enhancing the efficacy of the
Commission’s oversight of reporting
CPOs and their operated pools.
ii. Instructions 3 and 5
Instruction 3 on Form CPO–PQR was
carried over, in relevant part, to the
Proposal’s Revised Form and states: The
CPO May Be Required to Aggregate
Information Concerning Certain Types
of Pools. For the parts of Form CPO–
PQR that request information about
individual Pools, you must report
aggregate information for Parallel
Managed Accounts and Master Feeder
Arrangements as if each were an
individual Pool, but not Parallel Pools.
Assets held in Parallel Managed
Accounts should be treated as assets of
the Pools with which they are
aggregated.
110
Paragraphs in Instruction
3 of the existing form describing how to
determine if a CPO is a Mid-Sized or
Large CPO required to complete
Schedules B or C, or if a pool is a Large
Pool for purposes of completing
Schedule C, were proposed to be
deleted from the Revised Form.
111
In the
Proposal, the Commission also retained
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2020 CPO–PQR NPRM, 85 FR at 26392 (May
4, 2020) (proposing Instruction 5 of the Revised
Form).
113
Id.
114
NFA, at 3.
115
Id.
116
SIFMA AMG, at 8–9 (stating its belief that
these instructions were borrowed from Joint Form
PF and the main function of this instruction is to
aggregate pool assets of a CPO, for the purpose of
determining whether a firm is a Large, Mid-Sized,
or Small CPO, and whether a pool is a Large Pool).
117
Id.
118
Id. at 9.
119
SIFMA AMG, at 11–13 (explaining further
that, ‘‘[t]o align with the Commission’s proposal to
require pool LEIs on the CPO–PQR, we are
suggesting that should a single filing be permitted
for Master-Feeder Arrangements, a CPO should
provide the LEI of a Master Fund’’).
120
See infra Revised Form CPO–PQR, ‘‘Reporting
Instructions,’’ no. 3.
121
17 CFR part 4, app. A, ‘‘Definitions of Terms,’’
‘‘Master-Feeder Arrangement.’’
122
2020 CPO–PQR NPRM, 85 FR at 26391–92
(May 4, 2020) (proposing to retain Instruction 4 in
the Revised Form).
123
Id.
124
NFA, at 3.
125
Id. (emphasizing that NFA would like to see
these ‘‘other pool investments’’ reflected in
multiple answers in the Revised Form, in particular
to Questions 2 and 8 on assets under management,
Question 9 for the calculation of monthly rates of
return, and the PSOI in Question 11 on investments
in other funds).
126
IAA, at 6, n.28.
127
IAA, at 6.
Instruction 5, which read as follows: I
am required to aggregate funds or
accounts to determine whether I meet a
reporting threshold, or I am electing to
aggregate funds for reporting purposes.
How do I ‘‘aggregate’’ funds or accounts
for these purposes?
112
Instruction 5
then provided substantive examples on
how to aggregate funds as if they were
one pool with respect to parallel
managed accounts (PMAs) and/or
Master-Feeder Arrangements.
113
NFA responded to the Commission’s
question on additional clarifications to
the Revised Form’s instructions, stating
that, if the Revised Form is adopted as
proposed, the reporting requirements for
CPOs will no longer be dependent on
reporting thresholds, and therefore, a
detailed instruction on PMAs is not
necessary.
114
NFA recommended
accordingly that the Commission
‘‘consider whether these instructions
and the related definitional terms
should be eliminated.’’
115
SIFMA AMG
also stated that the purpose of
aggregating pool assets would no longer
be relevant under the Revised Form, and
it would be unclear what these
instructions mean under the Revised
Form, absent those reporting
thresholds.
116
Therefore, SIFMA AMG
also requested the Commission remove
Instructions 3 and 5 related to PMAs,
given the proposed deletion of
Schedules B and C and the associated
thresholds for CPOs and pools. SIFMA
AMG, like NFA, believed that the
concept of PMAs and pool asset
aggregation, as a whole, is no longer
relevant to completing the Revised
Form.
117
SIFMA AMG also
recommended the Commission revise
the Revised Form further to permit the
filing of Master-Feeder Arrangements as
one pool, rather than requiring each
fund to report separately.
118
Finally,
SIFMA AMG suggested the Commission
adopt the approach taken in Joint Form
PF with respect to Master-Feeder
Arrangements, specifically in Joint Form
PF Instruction 5.
119
The Commission generally agrees
with commenters with respect to PMAs
and the remaining references to
reporting thresholds in the proposed
Revised Form. Consequently, the
Commission believes that much of the
language in these instructions should be
deleted for internal consistency in the
Revised Form. Therefore, the
Commission is revising Instruction 3 to
remove all references to PMAs and
Parallel Pools, focusing solely on
reporting information concerning pools
in a Master-Feeder Arrangement. Thus,
Instruction 3 in the Revised Form only
addresses how Master-Feeder
Arrangements should be reported.
120
With respect to the treatment of
Master-Feeder Arrangements under the
Revised Form, commenters raise an
interesting question as to the proper
requirements to impose on structures
meeting the form’s definition of a
Master-Feeder Arrangement.
Specifically, the form provides that a
Master-Feeder Arrangement is ‘‘an
arrangement in which one or more
funds (‘‘Feeder Funds’’) invest all or
substantially all of their assets in a
single fund (‘‘Master Fund’’).’’
121
This
definition encompasses many variations
of fund complexes from funds with
wholly-owned subsidiaries, to funds
with multiple levels of intermediary
funds between the feeder and master
funds, to the more traditional structures
where two or more feeder funds invest
substantially all of their assets into a
commonly owned master fund. The
Commission believes that, to adequately
consider the propriety of permitting all
such fund structures to consolidate their
filings on the Revised Form, additional
analysis is required to determine the
appropriate parameters to impose on
such relief. Therefore, the Commission
declines to change the reporting
approach for Master-Feeder
Arrangements at this time and instead,
instructs staff to engage in such an
analysis to determine what
modifications may be needed to provide
for consolidated reporting where
appropriate.
Upon consideration of the comments,
the Commission is deleting Instruction
5 in its entirety because this instruction
was originally included to explain how
a reporting CPO should determine if it
is a Large, Mid-Sized, or Small CPO,
and what the resulting scope of its filing
should be, i.e., whether Schedules B or
C (or both) were required. Accordingly,
because Instruction 5 is no longer
applicable, the Commission has
removed it from the Revised Form.
iii. Instruction 4
The Proposal also retained Instruction
4, which provided the following: I
advise a Pool that invests in other Pools
or funds (e.g., a ‘‘fund of funds’’). How
should I treat these investments for
purposes of Form CPO–PQR?
122
The
Instruction states, in pertinent part, that
for purposes of this Form CPO–PQR,
you may disregard any Pool’s equity
investments in other Pools.
123
NFA
requested that the Commission
‘‘consider eliminating the guidance in
Instruction 4 regarding the ‘investments
in other Pools generally’ heading’’
because that guidance allows a CPO to
disregard a pool’s equity investments in
other pools, and NFA would like these
assets included.
124
This reporting helps
NFA ‘‘identify pool assets that may also
be reported by another pool or fund.’’
125
However, IAA disagreed ‘‘with any
recommendation to eliminate
Instruction 4,’’ because IAA would
consider that ‘‘a significant change in
how CPOs currently report on the
form.’’
126
Consequently, IAA stated that
this particular change should be
considered, if at all, ‘‘as part of a formal
rulemaking, with notice and
comment.’’
127
Instruction 4, in the original form,
was generally intended to provide clear
instruction that investments in other
pools should not be included in a
specific reporting CPO’s or operated
pool’s applicable reporting threshold.
For example, a pool’s fund-of-funds
investments, in which the reporting
CPO may have little to no control over
the management or performance of
those assets, should not cause a pool to
be considered a ‘‘Large Pool,’’ which
would require additional, highly
detailed reporting with respect to that
pool. Similarly, a reporting CPO should
not also have been categorized as a
Large or Mid-Sized CPO, with
consequences to the scope and breadth
of their filings, solely due to the fact that
its aggregated pool AUM included
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128
2020 CPO–PQR NPRM, 85 FR at 26394 (May
4, 2020).
129
IAA, at 5.
130
Id. (stating that large numbers of non-
commodity interest transactions and differences in
brokerage firm names could make answering this
question completely particularly difficult for CPOs
that have hundreds of relationships with approved
brokers for their non-commodity interest trading).
131
IAA, at 6. IAA further stated its expectation
that, should the Commission clarify the ‘‘broker’’
definition to refer only to brokers involved in
commodity interest transactions, then NFA would
likewise adopt an identical interpretation for NFA
Form PQR. Id.
132
ICI, at 5.
133
See 17 CFR part 4, app. A, ‘‘Definitions of
Terms,’’ ‘‘broker’’ (defining ‘‘broker’’ as ‘‘an entity
that provides clearing, prime brokerage or similar
services to the Pool’’).
134
See, e.g., 2015 CPO–PQR FAQs, in which
Commission staff further echoed this broad
understanding of ‘‘broker’’ in its discussion of pool
custodians, marketers, and underwriters.
135
See supra II.C.
investments in other pools that it does
not operate.
Although NFA presents a compelling
argument regarding its anticipated use
of information regarding pools’
investments in other pools, the
Commission has determined to continue
to provide CPOs with the discretion to
include or exclude such investments,
provided that their treatment is
consistent throughout the Revised Form.
The Commission understands from IAA
that this would be a significant change
in how CPOs of pools that invest in
other pools engage with the form and
could be quite burdensome for CPOs
that may be reporting such information
for the first time. Moreover, the
Commission believes that retaining the
obligation to include such investments
in the reported pool’s AUM and NAV
(Question 8 of the Revised Form), as
well as requiring the investments to be
enumerated in the PSOI, as discussed
below, provides adequate information
about a pool’s investments in other
pools for the Commission to oversee
their activities, while the Commission
continues to develop its abilities to
integrate its data regarding reporting
CPOs and their operated pools.
Therefore, consistent with Instruction 4
as originally adopted, the Commission
will continue to require that such
investments be included in a reporting
CPO’s response to Question 10 in the
current form, which solicits information
regarding the pool’s statement of
changes concerning AUM, and which
has been redesignated as Question 8 in
the Revised Form, as well as in the PSOI
in the Revised Form, but will not
otherwise require such CPO to include
a pool’s investments in other pools in its
responses to the Revised Form.
The Final Rule’s revisions to
Instruction 4 also require the reporting
CPO to include such investments in
other pools in the PSOI. In the Proposal,
the Commission amended the form by
removing detailed pool information set
out in Schedules B and C, but retained
the PSOI, which has now become the
only section on Revised Form CPO–PQR
that provides detailed pool investment
information. In the original form, the
PSOI supplemented the rest of the
information provided; going forward,
with the amendments removing
Schedules B and C, the PSOI’s value
and status has changed, as it is now the
key collection of information through
which the Commission can analyze the
market activities and risks of CPOs and
their operated pools. Therefore, due to
the change of importance and status of
the PSOI, along with its plain language,
which includes line items for various
classes of funds, such as mutual funds,
private funds, and money market funds,
reporting CPOs must disclose their
pools’ investments in other funds as
part of the PSOI. The Commission
further believes that requiring these
investments to be listed in the PSOI is
necessary for it to make full use of the
information provided on Question 8 in
the Revised Form, for which such
investments must also be included.
Without this detail in the PSOI, it would
be very difficult to determine the asset
classes influencing the movement in a
pool’s AUM and NAV from one
reporting period to the next. Therefore,
the Revised Form retains the current
general treatment of investments in
other pools currently set forth in
Instruction 4, with the additional
clarification that they are included in
the PSOI.
With respect to pools that invest
substantially all of their assets in other
pools, their investments in other pools
were required to be included in the
reporting CPO’s responses to Schedule
A of Form CPO–PQR. Because under the
Revised Form, Schedule A comprises
the entirety of the Revised Form, with
the exception of the addition of the
PSOI, the Commission is revising
Instruction 4 to provide that such other
pool investments must be reported on in
the Revised Form.
iv. Definition of ‘‘Broker’’
Like the original iteration of the form,
the Proposal defined ‘‘broker’’ as any
entity that provides clearing, prime
brokerage, or similar services to the
Pool.
128
IAA recommended that the
Commission clarify whether a ‘‘broker’’
in the Revised Form refers to only
commodity-related brokers, or includes
non-commodity brokers.
129
IAA further
explained that CPOs may have many
relationships with executing brokers for
non-commodity interest transactions,
and absent a clarification of this
definition, this prompt would constitute
a substantial burden for CPOs to include
all brokers in the Revised Form.
130
Finally, IAA queried what regulatory
interest or benefit the Commission
would gain from a broad definition of
‘‘broker,’’ and concluded that, ‘‘we do
not believe this information is necessary
to implement [Revised] Form CPO–PQR
or to assist the CFTC in its oversight of
the commodities markets.’’
131
ICI also
supported clarifying the ‘‘broker’’
definition in this manner, and limiting
the responses to the Revised Form ‘‘to
brokers that a CPO uses with respect to
commodity interest transactions,’’
because, ICI explained, such an
approach would be consistent with the
Proposal’s stated purpose of refining
reporting, ‘‘in order to better monitor
the commodity interest markets.’’
132
The Commission has consistently
understood the term ‘‘broker,’’ in the
context of Form CPO–PQR, to include
more than just those service providers
engaging in the commodity interest
markets,
133
and has not limited the
definition of the term ‘‘broker,’’ as used
either in the current form or the Revised
Form, in any manner. Moreover, Form
CPO–PQR, as a general matter, has
consistently requested information on
all enumerated service providers used
by a reporting CPO for its operated
pool(s), regardless of the asset class or
markets involved.
134
Consistent with
this position, which is supported by the
plain meaning of the Form CPO–PQR’s
definition of ‘‘broker,’’ reporting CPOs
currently filing the form should identify
any broker used in any transactions for
any pool not operated pursuant to an
exemption or exclusion during the
reporting period. This is also consistent
with other aspects of the form and the
Revised Form, e.g., the PSOI, which are
not limited to collecting data solely on
the commodity interest transactions of a
reporting CPO and its operated pools.
The Commission notes elsewhere in
this release that the trading activity or
investments of pools in asset classes
other than commodity interests may
impact the viability of that pool and/or
the overall operations of its CPO.
135
This fact has been highlighted by the
recent unprecedented market
movements and difficulties resulting
from the Covid–19 pandemic and its
broad negative effects on the U.S. and
global economies. Therefore, the
Commission finds that collecting data
on CPO and pool activity outside of
commodity interests is also of general
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2020 CPO–PQR NPRM, 85 FR at 26383 (May
4, 2020).
137
SIFMA AMG, at 7.
138
2015 CPO–PQR FAQs.
139
SIFMA AMG, at 17 (recommending further the
creation of a centralized ‘‘Glossary of Terms’’ for
use by filers of the Revised Form and/or NFA Form
PQR). Currently, SIFMA AMG states that some
definitions may be found in NFA Form PQR, while
others are solely in the Revised Form, and still
other definitions or information solely published in
the FAQs. SIFMA AMG would like to see this
information centralized and easily accessible for
CPOs filing the Revised Form. Id.
140
IAA, at 6.
141
MFA, at 3. MFA stated that otherwise,
Commission staff would need to separately issue
FAQs with respect to the adopted Revised Form to
replace the existing 2015 CPO–PQR FAQs, which
MFA views as less effective than centralizing and
incorporating FAQs and instruction examples in the
Revised Form. Id. at 4.
142
SIFMA AMG, at 17.
143
2020 CPO–PQR NPRM, 85 FR at 26378 (May
4, 2020).
144
2020 CPO–PQR NPRM, 85 FR at 26378 (May
4, 2020) (citing the lack of similarities between Joint
Form PF and the Proposal’s Revised Form).
145
Barnard, at 1–2; Hunter, at 1; IAA, at 4.
146
IAA, at 4.
147
IAA, at 6 (requesting that ‘‘the instruction state
that a CPO ‘required to file NFA Form PQR with
the NFA for the reporting period may make the
NFA filing in lieu of the Form CPO–PQR report
required under Rule 4.27(c)’’’).
148
IAA, at 6.
149
SIFMA AMG, at 15–16.
regulatory interest and concern to the
Commission with respect to its effective
oversight of reporting CPOs and their
operated pools. The Commission has
concluded that limiting the brokers
reported solely to those used in
connection with commodity interest
transactions would not be conducive to
its effective oversight, would be a
significant departure from its clear past
positions and interpretations of the
form, and further, would result in
internal inconsistency in the Revised
Form, where some aspects of the data
collection would be limited to
commodity interests, whereas others
would not. Therefore, after considering
the comments, the Commission is not
changing the scope of the definition of
the term ‘‘brokers,’’ and confirms, in the
context of the Revised Form as adopted,
that the term is not limited to those
brokers used in connection with
commodity interest transactions.
v. Elimination of Questions Regarding
Auditors and Marketers
The Proposal also would remove
questions regarding a CPO’s auditors
and marketers employed for its operated
pools because the Commission and NFA
have access to this information through
other regulatory sources, ‘‘which the
Commission preliminarily believes
obviates the need for obtaining this
information through Revised Form
CPO–PQR.’’
136
SIFMA AMG
specifically supported the removal of
these questions, stating this proposed
deletion is especially appropriate where
the information is already required
elsewhere by other regulations or
filings, and is therefore, easily
accessible to the CFTC and NFA.
137
With respect to questions regarding a
CPO’s auditors or marketers, the
Commission is adopting the Revised
Form as proposed, omitting those
questions, for the reasons articulated in
the Proposal.
vi. FAQs and Glossary
The Revised Form includes a list of
‘‘Defined Terms,’’ which was entitled
‘‘Definitions of Terms’’ in its prior
iteration. In 2015, Commission staff
published responses to frequently asked
questions (the 2015 CPO–PQR FAQs, or
FAQs) providing detailed answers to
questions from CPOs attempting to
complete Form CPO–PQR.
138
SIFMA
AMG requested that the Commission
align the 2015 CPO–PQR FAQs with the
Revised Form, such that these items can
be clarified and updated for
completeness and accuracy.
139
IAA
recommended that the Commission
improve the clarity of the FAQs by
removing language that would not apply
to the Revised Form, specifically
referencing PMAs, parallel pool
structures, and aggregating funds for
reporting threshold purposes.
140
MFA
suggested the Commission amend the
instructions in the Revised Form to
‘‘incorporate relevant, substantive FAQs
into the instructions of Form CPO–
PQR.’’
141
Furthermore, SIFMA AMG
requested an additional change to the
FAQs to create a complete Glossary of
Terms for use by filers of the Revised
Form.
142
The Commission understands
commenters’ concerns that the form will
be significantly revised by the Final
Rule, resulting in large portions of the
2015 CPO–PQR FAQs becoming
obsolete or inaccurate, absent
commensurate revisions. Therefore,
while reviewing comments and
developing the Revised Form for the
Commission’s consideration,
Commission staff has also reviewed the
2015 CPO–PQR FAQs in light of the
revisions adopted herein. The
Commission expects staff to complete
this review and to publish updated
FAQs regarding the Revised Form, as
soon as practicable, following the
adoption of the Final Rule.
The Commission is also making some
technical changes to regulatory citations
and cross-references in the Revised
Form, and further clarifying its
definitions and instructions to facilitate
completion of the Revised Form. The
technical clarifications include revising
the definition of ‘‘GAAP’’ in the Revised
Form to reflect the ability of reporting
CPOs to use certain ‘‘alternative
accounting principles, standards, or
practices’’ currently permitted under
§ 4.27(c)(2), which is redesignated by
the Final Rule as § 4.27(c)(4). The
Commission is also reorganizing the
Revised Form, so that the Defined
Terms precede its Instructions, which
the Commission hopes will facilitate
understanding of the Revised Form.
G. Substituted Compliance
The Proposal also included
amendments to § 4.27 that would allow
CPOs to file NFA Form PQR in lieu of
filing the Revised Form with the
Commission,
143
and eliminate the
ability of dually registered CPO-
investment advisers filing Joint Form PF
to file such form in lieu of the Revised
Form.
144
i. NFA Form PQR
In general, commenters supported the
proposed amendment permitting CPOs
to file NFA Form PQR in lieu of the
Revised Form for the purpose of
improving filing efficiencies.
145
IAA
commended the Commission ‘‘for
offering CPOs additional filing
efficiencies without compromising the
Commission’s ability to obtain affected
data.’’
146
IAA further recommended
that the Commission add a specific
instruction to the Revised Form to
reflect this allowing the filing of NFA
Form PQR as substituted compliance.
147
IAA stated that by explaining this
substituted compliance for NFA Form
PQR within the Revised Form’s
instructions, the Commission would
‘‘assist CPOs that frequently review the
instructions for the form in addition to
or instead of the text of the rule to
ensure the filing is accurate and
complete.’’
148
Additionally, as noted
with respect to the proposed uniform,
quarterly filing schedule above, SIFMA
AMG expressed its strong support for a
single filing schedule across the Revised
Form and NFA Form PQR, as well as for
the adoption of substituted compliance
with respect to NFA Form PQR.
149
The Commission has determined that,
upon NFA’s inclusion of questions
eliciting LEIs, NFA Form PQR will be
substantively consistent with Revised
Form CPO–PQR. The Commission
recognizes, however, that absent a
condition requiring NFA Form PQR to
be substantively consistent with Form
CPO–PQR on an ongoing basis, it is
possible for the two forms to diverge
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150
7 U.S.C. 21(j).
151
See infra Revised Form CPO–PQR, ‘‘Reporting
Instructions,’’ no. 2.
152
NFA, at 2 (stating there is no need to ensure
similar reporting obligations between the SEC and
CFTC, where ‘‘the Commission believes it will have
sufficient tools with [the Revised Form] and other
data streams to effectively oversee registered CPOs
and the commodity interest markets’’). NFA noted
further that, even if the CFTC were to rescind Form
CPO–PQR in favor of Joint Form PF, NFA would
still require its CPO Members to file NFA Form
PQR, ‘‘which is tailored to NFA’s needs and is not
a significant burden on Members to complete.’’ Id.
153
ICI, at 5 (agreeing 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’’).
154
AIMA, at 2.
155
SIFMA AMG, at 16.
156
2020 CPO–PQR NPRM, 85 FR at 26384 (May
4, 2020).
157
AIMA, at 2 (noting that if the Commission
decides against allowing Joint Form PF as
substituted compliance for §4.27, ‘‘it is likely that
non-private fund commodity pools will no longer
be included in Form PF to reduce the filing burden
as far as possible’’).
158
ICI, at 5–6.
159
SIFMA AMG, at 16.
160
2020 CPO–PQR NPRM, 85 FR at 26383 (May
4, 2020).
161
ICI, at 2–3, n.6. ICI suggested that the CFTC
use the SEC filings and reports already filed by
CPO/IAs of RICs, which require disclosure of LEIs,
to glean data on the commodity interest activities
of these operators and pools. Id. See also
Harmonization of Compliance Obligations for
Registered Investment Companies Required to
Register as Commodity Pool Operators, 78 FR 52308
(Aug. 22, 2013).
162
5 U.S.C. 553(c).
over time while still being eligible for
substituted compliance, and that this
could undermine the Commission’s
collection of vital information regarding
reporting CPOs and their operated
pools. Therefore, the Commission will
review any proposed changes to NFA
Form PQR consistent with the
procedure set forth in CEA section
17(j).
150
This will ensure the continued
alignment of the forms. Because any
alterations to NFA Form PQR would be
accomplished through amendments to
NFA membership rules, which are
subject to review by Commission staff
and either notice to, or review by, the
Commission, ongoing monitoring of the
continued substantive consistency of
the forms should be easily implemented
through this existing process.
Therefore, the Commission is
adopting, as proposed, the amendments
to § 4.27(c)(2) clearly establishing
substituted compliance for the Revised
Form with respect to NFA Form PQR.
Finally, upon consideration of the
comments, the Commission is adding a
new Instruction 2 in the Revised Form
that explicitly states that to the extent a
CPO has timely filed the National
Futures Association’s Form PQR, such
filing shall be deemed to satisfy this
Form CPO–PQR.
151
ii. Joint Form PF
The decision to rescind substituted
compliance with respect to Joint Form
PF elicited differing opinions from
commenters. For instance, NFA did not
support the alternative of filing all or
part of Joint Form PF, in lieu of the
Revised Form, because Joint Form PF is
at least as burdensome as the
Commission’s form, and further, it
includes ‘‘significantly more
information than NFA needs.’’
152
ICI
also disagreed with replacing the form
with all or part of Joint Form PF because
that would impose additional burdens
on dually registered CPOs, who are not
currently required to file Joint Form PF
for their registered funds, and therefore,
would be required to adapt their current
systems and processes to Joint Form
PF.
153
Conversely, AIMA requested that the
Commission and NFA allow dually
registered CPOs to file Joint Form PF in
satisfaction of the reporting obligations
in § 4.27 and NFA Compliance Rule 2–
46, because this approach would reduce
the reporting burden, ‘‘while still
assuring NFA has the necessary
information from a supervisory
perspective.’’
154
Rather than eliminate
§ 4.27(d) entirely, SIFMA AMG
requested that the Commission preserve
substituted compliance with respect to
Joint Form PF on a voluntary basis
because some of its members believe
there would be efficiencies in allowing
Joint Form PF to be filed for both private
fund and non-private fund pools.
155
The Commission specifically asked in
the Proposal, For CPOs dually-registered
with the CFTC and the SEC, if Form
CPO–PQR is amended as proposed,
would you cease reporting data for these
pools on Joint Form PF?’’
156
AIMA
responded that these CPOs are likely to
continue including them rather than
incurring the costs of a separate filing
obligation, if ‘‘the inclusion of such
non-private fund pools on Form PF can
be treated as satisfaction of separate
Form CPO–PQR and NFA Form PQR
filing obligations, and those pools have
been included in the Form PF
previously.’’
157
ICI argued that,
although adopting the Proposal may
mean less data with respect to
commodity pools would be reported on
Joint Form PF, that prospect, in general,
should not be the driving factor in this
policy decision—rather, the
Commission should focus on whether
the Revised Form elicits the information
it needs and will use in pursuit of its
regulatory mission with respect to CPOs
and their pools.
158
SIFMA AMG noted,
however, that it generally supports the
elimination of detailed reporting
requirements for CPOs, and it does not
believe there would be regulatory harm,
if information is no longer being
provided on Joint Form PF with respect
to non-private fund pools.
159
After considering the comments
received, the Commission is adopting
the amendments to § 4.27, eliminating
the substituted compliance for a dually
registered CPO-investment adviser
completing Joint Form PF in lieu of the
Revised Form, as proposed for the
reasons stated in the Proposal.
160
The
original § 4.27(d), which provided that
substituted compliance mechanism with
respect to Joint Form PF, is no longer
appropriate because: (1) The Revised
Form will differ from Joint Form PF,
both in substance and filing schedule;
and (2) continuing to accept Joint Form
PF in lieu of the Revised Form would
frustrate an intended and clearly stated
purpose of the Proposal, i.e., is to
enhance and better coordinate the
Commission’s own internal data streams
to more efficiently and effectively
oversee its registered, reporting CPOs
and their operated pools.
iii. Substituted Compliance for CPOs of
Registered Investment Companies
ICI also commented particularly on
the burdens imposed by the proposed
amendments on CPOs of registered
investment companies (RICs).
Specifically, ICI requested that, to
eliminate duplicative reporting between
the SEC and CFTC regimes applicable to
the operations of RICs, the Commission
consider adopting a substituted
compliance approach with respect to
periodic reporting by CPOs of RICs,
similar to its 2013 rulemaking to
harmonize RIC and CPO/pool regulatory
requirements.
161
Although the
Commission noted in the Proposal that
RICs are subject to comprehensive
regulation by the SEC, it did not discuss
the possibility of deferring to the SEC
with respect to collecting information
from CPOs of RICs. Under these
circumstances, the Commission would
be unable to address the issue of
providing additional substituted
compliance to CPOs of RICs without re-
proposing and reopening the comment
period for the NPRM.
162
Moreover, the Commission believes
that the suggested approach by ICI
would simply not be practical. As
explained by ICI, RICs file numerous
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163
ICI, at 2, n.7. These reports include N–PORT
and N–CEN and address information about the
RIC’s portfolio, investment policies and practices,
and other information. Id.
164
MFA, at 4.
165
5 U.S.C. 601 et seq.
166
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).
167
Id. at 47 FR 18619–20 (Apr. 30, 1982).
Commission regulation at §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. 17 CFR 4.13(a)(2).
168
Moreover, §4.27(b)(2)(i) specifically excludes
from the obligation to file Form CPO–PQR any CPO
that operates only pools for which it maintains . . .
an exemption from registration as a commodity
pool operator as provided in §4.13.
169
44 U.S.C. 3501, et seq.
170
2020 CPO–PQR NPRM, 85 FR at 26386 (May
4, 2020).
regulatory filings,
163
each of which are
designed for a particular purpose by the
SEC. Incorporating those filings into the
Commission’s filing regime via
substituted compliance would be
difficult to accomplish and would
require the devotion of significant time
and resources by both the Commission
and NFA. None of these filings,
however, is a direct analog to the
Revised Form, which adds to the
complexity of any undertaking to create
a substituted compliance regime with
respect to those filings. Finally, the
Commission has identified limited
benefit in providing such relief, if it
were possible, because such CPOs
would remain subject to NFA’s
independent reporting requirement in
NFA Form PQR. Therefore, the
Commission declines to provide
additional substituted compliance for
CPOs of RICs in the amendments to
§ 4.27 adopted by the Final Rule.
H. Compliance Date
MFA requested that the Commission
consider providing registered CPOs with
six months from the adoption of a Final
Rule with respect to Form CPO–PQR to
permit reporting CPOs to make ‘‘coding
and software changes’’ to accommodate
Revised Form CPO–PQR’s
requirements.
164
The Commission has
determined not to require filing of
reports on the Revised Form for the
reporting period ending December 31,
2020. However, to the extent reporting
CPOs are required to file NFA Form
PQR for the reporting period ending
December 31, 2020, that filing must still
be submitted in accordance with
applicable NFA membership rules.
Therefore, reporting CPOs will be
required to submit the Revised Form
sixty days after the first 2021 reporting
period ends on March 31, 2021, making
initial compliance with the Revised
Form due on May 30, 2021. The
Commission has determined that this
schedule allows for adequate time for
CPOs and NFA to prepare their systems
and procedures with respect to the
Revised Form.
III. 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.
165
The Final Rule adopted by the
Commission will 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.
166
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 § 4.13(a)(2).
167
Because the Final Rule generally applies
to persons registered or required to be
registered as CPOs with the
Commission, the RFA is not applicable
to the Final Rule.
168
Accordingly, the Chairman, on behalf
of the Commission, hereby certifies
pursuant to 5 U.S.C. 605(b) that this
Final Rule will not have a significant
economic impact on a substantial
number of small entities.
B. Paperwork Reduction Act
i. 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.
169
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). The amendments set
forth in the Proposal would result in a
collection of information within the
meaning of the PRA, as discussed
below. The Commission therefore
submitted the Proposal to OMB for
review. The Proposal also invited the
public and other Federal agencies to
comment on any aspect of the proposed
information collection requirements
discussed therein;
170
however, no such
comments were received.
The Final Rule affects 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
commodity trading advisors (CTAs), as
well as certain enumerated exemptions
from registration as such, exclusions
from those definitions, and available
relief from compliance with certain
regulatory requirements.
As discussed above, the Final Rule
includes substantive changes to the
current form, such as (1) amending
Schedule A, (which, together with the
PSOI that is currently part of Schedule
B, will constitute the entirety of the
Revised Form), to add a requirement to
disclose the LEIs (if any) for each
reporting CPO and operated pool; (2)
moving Schedule B’s ‘‘Schedule of
Investments’’ section to Schedule A;
and (3) rescinding the remainder of the
current form’s current Schedules B and
C. Additionally, § 4.27(c)(2) will now
permit the filing of NFA Form PQR with
NFA in lieu of reporting CPOs filing the
Revised Form with the Commission.
Therefore, the Commission is amending
Collection 3038–0005 to be consistent
with the finalized restructuring of the
Revised Form. Specifically, the
Commission is amending the collection
to reflect the expected adjustment in
burden hours for registered CPOs filing
the Revised Form for their operated
pools, and also to include in the
collection, a reporting CPO’s ability to
file NFA Form PQR in lieu of filing the
Revised Form, provided that it is
determined to be substantively
consistent with the Revised Form.
This Final Rule is not expected to
impose any significant new burdens on
CPOs, but rather will constitute a
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171
See, e.g., supra pt. II.B (discussing the
elimination of Schedules B and C from the Revised
Form).
172
See infra §4.27(c)(2), as amended by this Final
Rule (permitting the filing of NFA Form PQR in lieu
of filing the Revised Form with the Commission).
173
As stated in the Proposal, ‘‘the PRA estimates
. . . 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.’’ 2020 CPO–PQR NPRM, 85 FR
at 26386 (May 4, 2020).
174
APA, 5 U.S.C. 553(c).
175
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.
176
The Commission rounded the average hours
per response to the second decimal place for ease
of presentation.
substantial reduction in reporting
burden for most impacted registrants.
Approximately half of all registered
CPOs are currently considered Mid-
Sized CPOs or Large CPOs under the
existing form and filing regime. Due to
the Final Rule and its significant
revisions to the form, these reporting
CPOs will be required to answer far
fewer questions, when compared to the
historical Form CPO–PQR’s
requirements.
171
CPOs classified as
Small CPOs may experience a slight
increase in burden, due to an increase
in the frequency of reporting to a
quarterly basis rather than annually, and
the addition of the PSOI to the Revised
Form for all reporting CPOs. The
Commission believes, however, that for
many of these CPOs, this burden
increase will practically be slight or
very technical in nature, because all
reporting CPOs currently complete NFA
Form PQR, which also includes a
schedule of investments identical to the
Revised Form’s PSOI, on a quarterly
basis pursuant to NFA membership
rules. The Commission anticipates that
going forward, pursuant to amended
§ 4.27(c)(2), reporting CPOs, regardless
of their size or classification under the
original form, will complete and file
NFA Form PQR in lieu of the Revised
Form, which will further allow them to
maximize efficiency by fulfilling both
NFA and CFTC reporting requirements
with one filing.
172
Therefore, the Commission infers that
the Final Rule and the Revised Form
will generally prove to be less
burdensome for reporting CPOs, or at
least, will not create any new net
burdens for them. As a result, the
Commission is amending Collection
3038–0005, as proposed, to reflect the
elimination of reporting thresholds and
classifications of CPO by size, as well as
the multiple Schedules in the original
form; to account for the uniform
quarterly filing schedule adopted for all
reporting CPOs for their operated pools;
and to adopt an overall estimated
burden for all filings that includes the
retained questions from Schedule A, as
well as the adopted PSOI (from original
Schedule B) discussed above. Although
the Final Rule results in an increase in
the burden hours associated with
completing the Revised Form, the
Commission anticipates that, in
practice, reporting CPOs will either
experience no change in their burden, or
some decrease in burden. As discussed
above, the Commission has determined
to accept the filing of NFA Form PQR
in lieu of filing the Revised Form.
Because any data on NFA Form PQR
submitted as substituted compliance for
required § 4.27 reporting would thereby
become data collected by the
Commission, the burden associated with
NFA Form PQR must also 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 the Revised Form.
173
Despite the fact that the Commission
will accept the filing of NFA Form PQR
in lieu of a filing on the Revised Form,
the Commission has determined that it
should retain its own form for data
collection purposes and to ensure that it
retains the ability to perform its
regulatory duties and satisfy its data
needs regarding CPOs in the future on
a unilateral basis, if necessary.
Moreover, the Commission anticipates
that it will incorporate the information
collected on the Revised Form more
consistently with its other data streams.
To that end, retaining its own form
independent of NFA confirms and
preserves the Commission’s
independent and primary role in
developing its regulatory and
compliance program with respect to
registered CPOs and their pools
generally, notwithstanding its history of
delegating certain registration and
compliance functions to NFA.
Furthermore, retaining the Revised
Form should ensure that the public is
able to exercise its rights to receive
notice and provide comment as to the
content and structure of the Revised
Form, as required by the Administrative
Procedure Act, and consistent with
prior practice for the original form.
174
Therefore, the Commission concludes
that the final Revised Form announced
today in the Final Rule is not
unnecessarily duplicative to
information otherwise reasonably
accessible to the Commission.
ii. Revisions to the Collection 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.
175
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 § 4.27.
Generally, the Commission is adjusting,
as discussed below, the information
collection to reflect an increase in the
burden hours associated with the
collection of information in the Revised
Form. The Commission anticipates,
however, that (1) CPOs currently
categorized as either Mid-Sized or Large
CPOs are expected to experience a
substantial reduction in burden relative
to the current filing requirements under
§ 4.27 and Form CPO–PQR; and (2)
CPOs considered Small CPOs under the
current filing requirements will
experience no practical or substantial
increase in burden because, like all
other registered CPOs, they are currently
required to file NFA Form PQR, which
already includes a schedule of
investments identical to the Revised
Form’s PSOI, on a quarterly basis, and
such Small CPOs, as well as all other
reporting CPOs, will be permitted to file
NFA Form PQR in lieu of filing the
Revised Form.
The currently approved total burden
associated with Collection 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.
176
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 Joint 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
Joint Form PF):
Estimated number of respondents:
250.
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Additionally, the Commission will be
accepting the filing of NFA Form PQR in lieu of the
Revised Form, which the Commission has designed
purposefully to be very similar. See supra pt. II.G.i.
The Commission reiterates that these PRA estimates
assume that all registered CPOs will either file the
Revised Form on a quarterly basis, or NFA Form
PQR, but in no event will a CPO be required to file
both.
178
7 U.S.C. 19(a).
179
7 U.S.C. 2(i).
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
Joint 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
Joint 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 was proposed 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 will no longer be
estimating burden hours according to
each individual Schedule of the form,
because, pursuant to the Final Rule, the
Revised Form will not have schedules.
Therefore, the Commission is amending
the collection for Form CPO–PQR
compliance to be a single burden-hours
estimate for each reporting CPO
completing the Revised Form in its
entirety.
177
As noted above, the
Commission is also requiring that the
Revised Form be filed quarterly by each
reporting 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 PSOI
comprised a considerable portion of the
burden hours previously associated
with completing Schedule B, depending
on the complexity of a reporting CPO’s
operations and the number of pools it
operated. Thus, the Commission is
estimating average hours per response
in such a way as 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 PSOI and the filing
frequency increasing to quarterly for
many reporting CPOs, CPOs should not
practically experience an increase in
burden. The Commission comes to this
conclusion because all reporting CPOs
are already required to provide a
schedule of investments identical to the
PSOI, as part of their existing NFA Form
PQR filings, which NFA membership
rules require on a quarterly basis, and
because the Commission expects that
those CPOs will continue to make such
filings to take advantage of the
substituted compliance for NFA Form
PQR with respect to the Revised Form,
as adopted by the Final Rule.
Therefore, the Commission estimates
the burden to registered CPOs for
completing the Revised Form and NFA
Form PQR, because of the option to file
this form in lieu of the Revised Form,
to be as follows:
For the Revised Form 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 § 4.27 and the Revised
Form, 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.
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.
178
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.
As discussed above, the Commission
is finalizing amendments to Form CPO–
PQR that would significantly reduce the
amount of reporting required
thereunder. Specifically, the Final Rule:
(1) Eliminates the pool-specific
reporting requirements in existing
Schedules B and C of Form CPO–PQR,
other than the PSOI (question 6 of
Schedule B); (2) amends 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) requires all reporting
CPOs to submit all information retained
in the Revised Form on a quarterly
basis; and (4) allows CPOs to file NFA
Form PQR in lieu of filing the Revised
Form, provided that NFA amends NFA
Form PQR to include LEIs. In the
sections that follow, the Commission
considers the various costs and benefits
associated with each aspect of the Final
Rule. The baseline against which these
costs and benefits are compared is the
regulatory status quo, represented by
Form CPO–PQR as codified in appendix
A to part 4 prior to these amendments.
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).
179
Some CPOs are located outside
of the United States.
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See supra pt. II.E.
i. The Elimination of Pool-Specific
Reporting Requirements in Schedules B
and C
The Commission is adopting as final
amendments that eliminate the pool-
specific reporting requirements in
existing Schedules B and C of Form
CPO–PQR, other than the PSOI
(question 6 of Schedule B). The
Commission acknowledges that this
change 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 of its other 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. The
challenges associated with the Form
CPO–PQR dataset are a primary reason
for the Commission’s decision to
discontinue its collection of this
information, including challenges posed
by the degree of flexibility afforded
CPOs in reporting this information, and
the fact that this information is only
reported to the Commission on a
quarterly basis, at its most frequent.
Given these limitations associated with
the data collected, the Commission has
determined to prioritize its limited
resources to pursue other key regulatory
initiatives.
However, considering the alternate
data streams currently available to the
Commission, the Commission should
nevertheless be able to effectively
oversee registered CPOs and their
operated pools, and potentially do so in
a more efficient and effective manner,
by adopting the Revised Form as
proposed, with some additional
clarifications to the Instructions and
Defined Terms. Furthermore, due in
part to the identified data quality issues,
the Commission has not provided FSOC
with any Form CPO–PQR data to date.
The Commission acknowledges, though,
that FSOC would now receive less data
from the Commission, as a result of
changes made by the Final Rule, as
some CPOs that are filing CFTC-only
pool information through Joint Form PF
may stop. Nonetheless, the Commission
does not believe that FSOC’s monitoring
abilities would be materially or
negatively affected, compared to the
status quo, by the Commission’s
rescission of most of Schedules B and C
in Form CPO–PQR, as the Commission
has not provided FSOC with any data.
The Commission anticipates that
eliminating these pool-specific reporting
requirements will also reduce the
ongoing variable compliance costs for
those CPOs considered Mid-Sized CPOs
or Large CPOs, and which may move
between those filing categories with
some regularity, under the status quo.
Consequently, those reporting CPOs
would no longer need to devote their
resources to compiling, analyzing, and
reporting this data, which may have had
limited utility with respect to their day-
to-day operations, to the Commission.
Additionally, reporting CPOs in general
will no longer be required to monitor
their AUMs for the specific purpose of
determining their filing obligations
because, pursuant to the Final Rule,
there is now a single filing requirement
for all reporting CPOs. It is possible that
the resulting cost savings may allow
those CPOs to devote their resources to
other compliance or operational
initiatives, or to potentially pass those
cost savings on to pool participants
through reduced fees. These cost
savings will likely be reduced, however,
for any CPO that is dually registered
with the SEC and required to file Joint
Form PF because that form requires
reporting of information substantially
similar to that required in the
eliminated Schedules B and C, and the
Final Rule does not alter any such
CPO’s Joint Form PF filing obligations.
Finally, the Commission recognizes that
the Final Rule also does not alleviate
any of the fixed or long-term costs
reporting CPOs may have already
incurred in developing systems and
procedures designed to meet the
reporting requirements of the original
form, including Schedules B and C.
ii. The Revised Form
This Final Rule adopts the Revised
Form, which retains questions from
existing Schedule A of Form CPO–PQR,
and also adds questions to request LEIs
for CPOs and their operated pools. The
Commission anticipates that adding
these LEI questions will allow it to
integrate the data collected by the
Revised Form with the Commission’s
other more current data streams.
Leveraging these other data sources in
combination with filings of the Revised
Form will enable the Commission to
continue its oversight and monitoring of
counterparty and liquidity risk for some
of the largest pools within the
Commission’s jurisdiction. The
Commission thereby concludes that the
Final Rule will allow it to focus on areas
relevant for assessing and monitoring
market and systemic risk, while
eliminating the reporting burden
associated with Schedules B and C,
particularly with respect to pools that
would be considered Large Pools.
The addition of these LEI fields may
minimally increase the cost for
reporting CPOs and their operated pools
that engage in swaps with respect to the
initial filing of the Revised Form, as
LEIs do not change over time,
potentially allowing fields for those
questions to be prepopulated in
subsequent filings. The Commission
observes further that neither the Revised
Form nor § 4.27 independently creates
an affirmative requirement for CPOs to
obtain LEIs for themselves and their
operated pools, and that CPOs engaging
in swaps already have LEIs for
themselves and/or their pools.
Additionally, the Commission has
declined in the Final Rule to require the
renewal or maintenance of LEIs for
purposes of meeting this Revised Form
requirement.
180
Accordingly, the
Commission finds that there is likely no
additional cost to consider for a
reporting CPO related to LEIs beyond
the minimal one-time expenditure for
the initial Revised Form filing that
includes LEIs.
The Final Rule also eliminates from
the Revised Form questions regarding
the pool’s auditors and marketers. The
Commission has determined that these
amendments will result in reduced costs
for reporting CPOs without affecting the
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
already subject to regulation by either
the Commission and NFA, or the SEC
and FINRA, and therefore readily
identifiable by the Commission outside
of Form CPO–PQR.
Currently, all CPOs other than Large
CPOs submit the information required
by the existing form’s Schedule A
annually. Increasing the frequency with
which this information is reported will
assist the Commission in its efforts to
integrate the Revised Form with the
Commission’s other timelier data
sources, which the Commission believes
will improve the overall efficacy of its
monitoring and oversight of CPOs and
their operated pools. Although this
amendment will result in an increased
regulatory cost for CPOs considered to
be Small and Mid-Sized CPOs under the
existing form, when compared to the
regulatory status quo, the Commission
concludes that the costs actually
realized by these CPOs will not be as
significant, as they are already reporting
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ICI commented that it did not believe that the
Commission should focus on any perceived data
needs of the FSOC in determining the scope and
focus of Form CPO–PQR, but rather the
Commission should act in whatever manner best
supports its own regulatory interests in revising the
form. ICI, at 5–6.
182
2020 CPO–PQR NPRM, 85 FR at 26388 (May
4, 2020).
183
ICI, at 5 (noting additionally that CPOs of RICs
would thus incur costs related to adapting their
current systems and processes for the purpose of
filing Joint Form PF instead).
184
2020 CPO–PQR NPRM, 85 FR at 26388 (May
4, 2020).
185
ICI, at 6.
this information on a quarterly basis via
NFA Form PQR, as required by NFA.
Under the current form, only Mid-
Sized and Large CPOs are required to
submit a PSOI, and Mid-Sized CPOs
submit that information annually. The
Revised Form, as adopted by the Final
Rule, will require all CPOs to submit
that information quarterly. The
Commission believes that receiving this
information from all reporting CPOs
more frequently will, when combined
with the new questions regarding LEIs,
further enhance its ability to integrate
the data collected by the Revised Form
with other data streams and to identify
trends on a timelier basis. As a result,
the Commission concludes that
adopting a quarterly filing schedule for
all CPOs reporting on the Revised Form
will ultimately support its goal of
effectively monitoring CPOs and their
operated pools for market and systemic
risk, while also simplifying the
reporting requirements applicable to
registered CPOs.
The Commission realizes that
requiring all information on the Revised
Form, including a PSOI for each
operated pool, from all reporting CPOs
on a quarterly basis will result in an
increased regulatory cost, when
compared to the regulatory status quo,
particularly for CPOs that would be
considered Small and Mid-Sized CPOs
under the existing filing regime. For
instance, CPOs previously considered
Small CPOs may be required to develop
the procedures and systems necessary to
meet the additional reporting
obligations for the Revised Form’s PSOI,
and CPOs previously considered either
Small CPOs or Mid-Sized CPOs will be
required by the Final Rule to report that
information to the Commission on a
quarterly basis. The Commission
emphasizes, however, that all registered
CPOs, regardless of the size of their
operations or AUM, are currently
required to report the PSOI on a
quarterly basis via NFA Form PQR, as
required by NFA membership rules,
meaning the actual costs as realized by
these CPOs as a result of the Final Rule
should not be as significant, given the
Commission’s goal of aligning the
Revised Form with NFA Form PQR.
The Final Rule also amends § 4.27(c)
such that it allows reporting CPOs to file
NFA Form PQR in lieu of filing the
Revised Form, provided that NFA
amends NFA Form PQR to include
questions regarding LEIs. Under NFA’s
membership rules, all CPOs regardless
of size are currently required to file NFA
Form PQR on a quarterly basis. This
provision will help CPOs maintain their
current filing costs without affecting the
scope of information available to the
Commission under the Revised Form.
As mentioned above, the Commission
acknowledges that, through adopting
this revision to § 4.27(d), the Final Rule
could result in less data being collected
on Joint 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 Joint
Form PF, in lieu of filing Form CPO–
PQR for such pools, in reliance on
§ 4.27(d). As a result of the Final Rule’s
revisions to § 4.27(d), these CPO-
investment advisers could decide to
stop including these pools in their Joint
Form PF filings. The Commission
concludes though that this loss of data
to the SEC and FSOC will not
meaningfully impact the efficacy and
intent of Joint 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; the Commission
acknowledges, however, that FSOC may
lose data for a specific type of private
fund asset class, specifically, managed
futures.
181
Additionally, all CPOs will be
required to make a certain amount of
alterations to their reporting systems to
accommodate the changes adopted
herein, even if it is just to deactivate
certain data elements that are no longer
required and to add the questions
regarding LEIs. The Commission
anticipates that any such costs will
generally be one-time expenditures, and
moreover, should not be extensive,
given the Commission’s efforts in the
Final Rule to align the Revised Form
with NFA Form PQR, to the greatest
extent possible.
iii. Alternatives
In lieu of amending Form CPO–PQR
as proposed, the Commission also
considered two alternative approaches
in the Proposal, and requested
comments and data on how those
potential alternatives might impact the
estimated costs and benefits to market
participants and the public.
182
The first
alternative considered by the
Commission was requiring all CPOs,
regardless of whether they are dually
registered, to file Joint Form PF. ICI
commented that this alternative would
likely result in increased costs for
registered fund CPOs, noting that,
although CPOs of RICs are regulated by
both the Commission and the SEC, such
CPOs are not currently required to file
Joint Form PF.
183
The Commission
agrees that this alternative would likely
increase the reporting burdens and costs
for CPOs not so dually registered, as
well as for CPOs that are dually
registered, yet do not currently file Joint
Form PF; under this alternative, those
CPOs would incur increased reporting
burdens and costs without providing
information directly to the Commission
that will be integrated with its other
data sources to develop its internal
oversight initiatives over CPOs and their
operated pools.
The second alternative described in
the Proposal that the Commission
considered was to devote resources to
rectifying the challenges with the data
reported under the current form, and
amend it to require greater consistency
and frequency of reporting of the data
fields eliminated by the Final Rule.
However, the Commission stated in the
Proposal its preliminarily belief that its
limited resources could be better
directed in line with its regulatory
priorities, and that its objectives with
respect to oversight of reporting CPOs
and their operated pools could be
effectively and potentially, more
efficiently, achieved through integration
with existing data streams.
184
ICI
supported this preliminary conclusion
by the Commission and argued that a
‘‘more targeted data set is most useful
for initial monitoring purposes.’’
185
After considering the alternatives and
the responsive comments, the
Commission concludes that the changes
to the form and § 4.27 adopted by the
Final Rule, relative to the alternatives,
will facilitate the Commission’s
effective discharging of its regulatory
duties in a manner that simultaneously
has the greatest impact on market and
systemic risk and eases reporting
obligations on a significant number of
reporting CPOs with respect to their
operated pools.
iv. Section 15(a) Factors
a. Protection of Market Participants and
the Public
The Commission believes that the
Final Rule will enhance the ability of
the Commission to protect derivatives
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7 U.S.C. 19(b).
markets, its participants, and the public
by allowing it to integrate the data
collected by the Revised Form with
other existing, more up-to-date data
streams in a way that will allow the
Commission to better exercise its
oversight of registered CPOs and their
operated pools. As discussed above, the
Final Rule may 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 believes that the
Final Rule will assist the Commission in
its efforts to support market efficiency,
competitiveness, and financial integrity.
Under the Final Rule, reporting CPOs
will continue to provide useful
information about themselves and their
operated pools to the Commission in a
way that will permit the Commission to
incorporate that data with its other data
streams. The Commission believes that
consolidating the data collected in this
manner will improve its oversight of
reporting CPOs, their operated pools,
and how they affect the derivatives
markets. Additionally, the Commission
believes that the specific requirement
that a reporting CPO prepare a PSOI on
a quarterly basis for each of its operated
pools may result in heightened
diligence by such CPOs, with respect to
their pools’ ongoing operations, and
may encourage particularly smaller
CPOs to adopt more formalized controls
for their businesses. The Commission
believes that both of those results will
generally enhance the confidence of
other market participants in transacting
with registered CPOs and their operated
pools, and generally, support the
efficiency, competitiveness, and
financial integrity of the markets.
c. Price Discovery
The Commission has not identified
any impact that the Final Rule would
have on price discovery.
d. Sound Risk Management Practices
Although the Commission is no
longer requiring reporting CPOs and
their operated pools to report certain
risk information on the Revised Form,
the Commission recognizes that CPOs
will likely, in general, continue to
benefit from establishing and possessing
systems that collect and review risk-
related information, even if it is no
longer reported. The Commission has
not identified any other impact that the
Final Rule would have on sound risk
management practices.
e. Other Public Interest Considerations
The Commission did not identify any
other public interest considerations that
the Final Rule would have.
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.’’
186
The Commission believes that the
public interest to be protected by the
antitrust laws is generally to protect
competition. The Commission requested
comment on whether the Proposal
implicates any other specific public
interest to be protected by the antitrust
laws, but did not receive any comments
on whether the Proposal was
anticompetitive.
The Commission has considered the
Final Rule to determine whether it is
anticompetitive and has identified no
anticompetitive effects. Because the
Commission has determined the Final
Rule is not anticompetitive and has no
anticompetitive effects, the Commission
has not identified any less
anticompetitive means of achieving the
purposes of the CEA.
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 hereby amends 17
CFR part 4 as set forth below:
PART 4—COMMODITY POOL
OPERATORS AND COMMODITY
TRADING ADVISORS
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.
2. In § 4.27, revise paragraphs (c) and
(d) to read as follows:
§ 4.27 Additional reporting by commodity
pool operators and commodity trading
advisors.
* * * * *
(c) Reporting. (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 a
commodity pool operator consistent
with appendix A to this part, or a
commodity trading advisor consistent
with appendix C to this part.
(2) A reporting person 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 paragraph
(c)(1) of this section; provided that, the
Commission has determined that NFA
Form PQR is substantively consistent
with appendix A to this part.
(3) Nothing in this provision restricts
the National Futures Association’s
ability to require reporting beyond that
required by the Commission; provided
that, such additional requirements are
consistent with the Commodity
Exchange Act and 17 CFR chapter I.
(4) All financial information shall be
reported in accordance with generally
accepted accounting principles
consistently applied. A reporting person
operating a pool that meets the
conditions specified in § 4.22(d)(2)(i) to
present and compute the commodity
pool’s financial statements contained in
the Annual Report other than in
accordance with United States generally
accepted accounting principles and has
filed notice pursuant to § 4.22(d)(2)(iii)
may also use the alternative accounting
principles, standards, or practices
identified in that notice in reporting
information required to be reported
pursuant to paragraph (c)(1) of this
section.
(d) Investment advisers to private
funds. Commodity pool operators and
commodity trading advisors that are
dually registered as investment advisers
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, in addition to filings made
pursuant to paragraph (c)(1) of this
section. Dually registered commodity
pool operators and commodity trading
advisors 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 material
fact in Form PF.
* * * * *
3. Revise appendix A to part 4 to read
as follows:
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Appendix A to Part 4—Form CPO–PQR
BILLING CODE 6351–01–P
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1
Amendments to Compliance Requirements for
Commodity Pool Operators on Form CPO–PQR, 86
FR 26378 (May 4, 2020).
2
Statement of Chairman Heath P. Tarbert in
Support of Revising Form CPO–PQR (Apr. 14,
2020), available at: https://www.cftc.gov/
PressRoom/SpeechesTestimony/
tarbertstatement041420b. See Charles Baggage,
Passages from the Life of a Philosopher (London
1864).
3
See Statement of Chairman Heath P. Tarbert in
Support of Revising Form CPO–PQR, supra note 2.
4
CFTC Finalizes Rules to Improve Swap Data
Reporting, Approves Other Measures at September
17 Open Meeting, available at: https://
www.cftc.gov/PressRoom/PressReleases/8247/20.
5
See Statement of Chairman Heath P. Tarbert in
Support of Final Rules on Swap Data Reporting
(Sep. 17, 2020), available at: https://www.cftc.gov/
PressRoom/SpeechesTestimony/
tarbertstatement091720c.
6
See Commodity Pool Operators and Commodity
Trading Advisors: Compliance Obligations, 77 FR
11252 (Feb. 24, 2012).
7
See Commodity Pool Operators and Commodity
Trading Advisors: Amendments to Compliance
Obligations, 76 FR 7976, 7981 (Form CPO–PQR
Proposal) (Feb. 11, 2011).
BILLING CODE 6351–01–C
Issued in Washington, DC, on October 9,
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 Compliance
Requirements for Commodity Pool
Operators on Form CPO–PQR—
Commission Voting Summary,
Chairman’s Statement, 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
When the Commission considered the
proposed rule to amend the compliance
requirements for commodity pool operators
(CPOs) on Form CPO–PQR,
1
I observed that
the esteemed 19th century mathematician
Charles Babbage had asked ‘‘if you put into
the machine the wrong figures, will the right
answers come out?’’
2
Baggage foresaw what
would evolve in the 20th century as the
‘‘garbage-in, garbage-out’’ predicament—that
is, the concept that flawed, or nonsense,
input data produces nonsense output or
‘‘garbage.’’
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.
3
For
example, we recently adopted three final
rules to revise CFTC regulations for swap
data reporting, dissemination, and public
reporting requirements for market
participants.
4
One purpose of those
amendments was 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.
5
Today we are engaged in a similar exercise.
The amendments to the compliance
requirements for CPOs on Form CPO–PQR
that we are considering reflect the CFTC’s
reassessment of the scope of the form and
how it aligns with our current regulatory
priorities. By refining our approach to data
collection, the final rule—in conjunction
with our current market surveillance
efforts—will enhance the CFTC’s ability to
gain more timely insight into the activities of
CPOs and their operated pools. At the same
time, the final rule will 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 of both the
CPO and the operated pool(s). When it
adopted 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.
6
For the majority of 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.
7
Shortcomings of Form CPO–PQR
Seven years of experience with Form CPO–
PQR, however, have not borne 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
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8
Dan M. Berkovitz, Commissioner, CFTC,
Statement on Proposed Amendments to Parts 45,
46, and 49: Swap Data Reporting Requirements
(Feb. 20, 2020), available at: https://www.cftc.gov/
PressRoom/SpeechesTestimony/
berkovitzstatement022020b.
9
See Financial Stability Board, Thematic Review
on Implementation of the Legal Entity Identifier,
Peer Review Report (May 28, 2019), available at:
https://www.fsb.org/2019/05/thematic-review-on-
implementation-of-the-legal-entity-identifier/.
10
See Sections 151–56 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Public
Law 111–203, 124 Stat. 1376 (2010).
11
In Section 8(e) of the CEA (7 U.S.C. 12(e)),
Congress authorized the CFTC to share nonpublic
information it obtains under the CEA with other
federal agencies acting within the scope of their
jurisdiction. Although Congress prohibited the
CFTC from publishing data and information that
would separately disclose the business transactions
or market positions of any person and trade secrets
or names of customers, Section 8(a) allows the
CFTC to publish research and analysis based on
such data and information where it has been
appropriately aggregated, anonymized, or otherwise
masked to avoid such separate disclosure. In
conjunction, these two provisions of Section 8 give
the CFTC the power to review the work product of
other federal agencies with which it shares data and
information to ensure that they do not separately
disclose confidential information obtained from the
CFTC, and to authorize those agencies to publish
research and analysis based on such confidential
information.
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.
Sound Regulation Means Collecting Only
Information We Intend to Use
What we need is not over-regulation or
even de-regulation, but rather sound
regulation. 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 significant 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 ineffective government.
My colleague Commissioner Dan Berkovitz
made the following observation in
connection with a different rulemaking: ‘‘In
addition to obtaining accurate data, the
Commission must also develop the tools and
resources to analyze that data.’’
8
He is spot
on. But 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.
Alternative, and Sometimes Better, Sources
of Data Are Available to the Commission
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 alternative data streams, which
include extensive information related to
trading, reporting, and clearing of swaps, are
in some cases more useful or robust than
information from Form CPO–PQR.
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
prompt, standardized, and reliable view into
relevant market activity than that provided
under Form CPO–PQR. As revised, data from
Form CPO–PQR will more easily be
integrated with these existing and more
developed data streams. This will 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.
In keeping with these principles—
particularly the principle that we should not
collect data we cannot use effectively—I note
that as part of this rulemaking the
Commission is instructing the staff to
evaluate the ongoing utility of the Pool
Schedule of Investments information in
revised Form CPO–PQR. This will include
comparing it to the 2010 Schedule of
Investments. The review will be completed
within 18–24 months following the date
upon which persons are required to comply
with the final rule and may result in further
recommended actions. During the review
period, the staff also may identify and extend
targeted relief for data fields that the CFTC
receives from other sources.
Legal Entity Identifiers Are Something We
Need
The final rule does more than simply
eliminate certain data collections. It also
requires 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,
9
this is 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.
Adding an LEI requirement for CPOs and
their operated pools will help give us a
complete perspective.
In addition, the final rule better aligns
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.
Form CPO–PQR, as Revised, has Other
Regulatory Benefits
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.
10
It was
contemplated that, for the OFR to do its
work, it 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.
Once Form CPO–PQR is revised, it has the
potential to be useful not only to the CFTC.
To this end, we have negotiated a
memorandum of understanding (MOU) with
the OFR, under which we will for the first
time provide to the OFR the information we
collect regarding CPOs. Under the MOU, the
OFR will receive the Form CPO–PQR
Information consistent with the provisions of
Section 8(e) of the CEA, which establishes
important protections for CFTC data
sharing.
11
Conclusion
For these reasons, I am pleased to support
the Commission’s final rule to amend the
compliance requirements for CPOs on Form
CPO–PQR. As revised, Form CPO–PQR will
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 operated pools.
This will primarily reduce current data
collection requirements, but also mandate
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.
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1
See section 404 of the Dodd-Frank Act.
2
NFA Comment Letter (June 20, 2020), https://
comments.cftc.gov/Handlers/
PdfHandler.ashx?id=29369.
1
Amendments to Compliance Requirements for
Commodity Pool Operators on Form CPO–PQR, 85
FR 26378 (proposed May 4, 2020) (the ‘‘NPRM’’).
2
See NPRM, 85 FR at 26379. 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 sections 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).
3
See, e.g., NPRM, 85 FR at 26381.
Appendix 3—Supporting Statement of
Commissioner Brian Quintenz
I support today’s final rule that would
simplify and streamline the reporting
obligations of commodity pool operators
(CPOs) on Form CPO–PQR. The Commission
first adopted Form CPO–PQR in 2012 and
closely modeled the form on Form PF. The
Commission adopted the Form of its own
volition; unlike Form PF, which is
specifically mandated by the Dodd-Frank
Act, there is no similar statutory directive
requiring the adoption of Form CPO–PQR.
1
In my opinion, since its adoption, the
detailed information requested on Form
CPO–PQR has not significantly enhanced the
Commission’s oversight over CPOs and has
never been fully utilized by staff. I have long
questioned the Commission’s need to know
the litany of data requested on the Form.
In my view, many of the questions on the
existing form 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. This is why I am very pleased that
the final rule eliminates the most
burdensome sections on the current form—
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.
While today’s final rule represents a
marked improvement over the current CPO
reporting regime, more work remains to be
done. Importantly, the proposal requested
comment about reverting back to the former
Schedule of Investments originally adopted
by the National Futures Association (NFA) in
2010 for its NFA Form PQR (2010 Schedule
of Investments). In 2012, the Schedule of
Investments adopted by the Commission
went further than the 2010 Schedule of
Investments, by lowering the itemized
reporting thresholds and adding significantly
more granular subcategories of investments.
For example, the Commission sought
information regarding the tranches of various
types of securitizations and the types of
bonds held by the pool. Historically, the
information on the Schedule of Investments
has mostly been used by the NFA for their
CPO examination program. However, in its
comment letter to the Commission, the NFA
noted that it ‘‘does not have a need for the
more granular information currently in the
Schedule’’ and that it ‘‘fully supports
[aligning the current schedule with the 2010
Schedule of Investments] because [NFA]
believe[s] a more streamlined schedule will
significantly alleviate filing burdens on CPOs
without negatively impacting the usefulness
of the information that is collected.’’
2
I am disappointed that this final rule does
not amend the form to adopt the 2010
Schedule of Investments, but I am
encouraged that the preamble instructs DSIO
staff to evaluate the ongoing utility of the
current Schedule of Investments, including
comparing it to the 2010 Schedule of
Investments, within 18–24 months following
the compliance date. As part of this review,
staff is instructed to consider whether or not,
in light of its utility, the Commission should
revert back to the 2010 Schedule of
Investments. After completing this review, in
whole or in stages, staff will develop
recommendations, provide relief, or propose
a rulemaking for the Commission’s further
consideration to effectuate staff’s findings.
This review will allow staff to carefully
consider which questions on the Schedule of
Investments are necessary to effectively
oversee CPOs and to propose eliminating any
fields which are being received through other
data channels or have no regulatory use case
to the Commission’s oversight function. I
think this review is long overdue and is
especially timely given the developments in
other data streams, like part 45 swap data,
that DSIO is actively working to combine
with clearinghouse data to provide a
complete picture of a CPO’s derivatives
activity. I believe that DSIO’s ability to
monitor, in real time, a fund’s derivatives
positions will be absolutely vital to the
oversight and regulation of commodity pools
in the future.
In closing, I deeply appreciate DSIO staff’s
efforts to address my concerns on this point
in the weeks leading up to today’s vote.
Thank you all very much for your
engagement and dedication.
Appendix 4—Concurring Statement of
Commissioner Rostin Behnam
I respectfully concur with the Commodity
Futures Trading Commission’s (the
‘‘Commission’’ or ‘‘CFTC’’) issuance of
today’s final rule (the ‘‘Final Rule’’)
amending Regulation 4.27 and Form CPO–
PQR. As a whole, the Final Rule provides a
thoughtfully balanced and complete
evaluation of the issues identified in the
notice of proposed rulemaking
1
and the
responsive comments. Perhaps, just as
importantly, the Final Rule clearly
acknowledges that it is the first of several
steps in the Commission’s ongoing
assessment of Form CPO–PQR not only for its
utility as a regulatory tool, but as a yardstick
to measure improvements to the
Commission’s data integration and analytical
capabilities. The Final Rule makes smart,
targeted corrections without forgoing the
possibility of future adjustments should the
Commission later determine that additional
data would support evolving regulatory
initiatives or Financial Stability Oversight
Counsel (FSOC) requirements to fulfill
statutorily mandated duties and initiatives
aimed at identifying and monitoring risks to
financial stability.
2
In determining to reduce the frequency and
scope of commodity pool operator (CPO) data
reporting and collection, the Commission is
pivoting away from what was an ambitious
vision for ongoing oversight, monitoring, and
trend analysis inspired by the events and
fallout of the 2008 financial crisis.
3
To be
sure, keeping pace with regulatory change
and shifting priorities while exercising
appropriate discipline in collecting,
handling, and managing data is an endless
endeavor. Nevertheless, I am pleased with
today’s outcome, and I am confident that as
we continue moving forward, the tremendous
abilities of the dedicated staff whose direct
insight and experience informed our
decisions will ensure we continue to act
decisively in furthering our goals and
supporting our mission critical duties.
The CFTC shares aspects of its regulatory
initiatives, risk surveillance, and monitoring
duties with respect to CPO and commodity
pools with the Securities and Exchange
Commission (SEC), the National Futures
Association (NFA), and the FSOC. The Final
Rule in its detailed preamble identifies areas
of overlap in which commenters suggested
that the Commission ought to retreat from its
proposed baseline for data collection in
Revised Form CPO–PQR. I am pleased that
the Commission reasonably considered such
comments and provides well-reasoned
responses based on analysis of facts and data
incorporated directly into the record. While
the Commission and its staff must always be
prudent and judicious in our allocation of
data, resources, authority, and deference in
working amicably towards common goals, we
should exercise great care so as to avoid
sacrificing primacy and independence when
acting directly in support of Congressional
mandates and statutory directives.
I appreciate the Commission and its staff’s
ongoing engagement with the SEC and FSOC,
as well as with NFA, throughout the drafting
of the NPRM and the Final Rule, and I am
encouraged that discussions are ongoing. As
we move forward, it is my intention to ensure
that the Commission provides staff the
support and resources necessary to effectuate
its current plans for Form CPO–PQR data and
make future amendments and adjustments, as
appropriate.
Appendix 5—Statement of
Commissioner Dan M. Berkovitz
I am voting for the final rule to amend
Regulation 4.27 and Form CPO–PQR (‘‘Final
Rule’’). This Final Rule makes adjustments to
the reporting requirements for Commodity
Pool Operators (‘‘CPOs’’) and their pools
based on lessons learned over several years
since the requirements were first adopted.
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71813
Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Rules and Regulations
Eight years ago, the Commission began
collecting information from CPOs on Form
CPO–PQR. During that period, the
Commission has come to learn that certain
information in Form CPO–PQR has not
materially improved the Commission’s
understanding of CPOs’ participation in
commodity interest markets, or its ability to
assess the risks their pools may pose. The
Final Rule eliminates information that has
not proven to be of value to the Commission.
Several commenters suggested that the
Commission collect less information on the
Pool Schedule of Investments (‘‘PSOI’’) about
CPO investments in various asset classes. I
support the Commission’s decision in the
Final Rule to continue to collect position
data about pool investments. To evaluate the
risks posed by CPOs and the pools they
operate, it is necessary to understand the
total portfolio of each pool and its trading
strategy. Recent market volatility—including
historic price movements in crude oil—
underscores the importance of the CFTC’s
ability to understand the nature of the
participants in our markets and the scope of
their activities in order to conduct timely
oversight and spot emerging trends or risks.
Since joining the Commission I have
supported and encouraged efforts to improve
our data and analytical capabilities, and
believe they should be expanded in the
coming years. Commission staff currently is
taking steps to better synthesize swap data
for large account controllers and develop a
more holistic surveillance program. Once
these analytical tools have been further
developed, staff will then be in a position to
advise the Commission regarding whether
any changes to the PSOI are appropriate.
To ensure that the Commission has a
complete picture of pool activity across all
derivatives markets, it should continue
working to integrate swaps data with futures
data. Some commenters have suggested that
one way to do this would be to require all
reporting CPOs and their pools—not just
those that trade swaps—to obtain LEIs and
submit them on Form CPO–PQR. I encourage
the Commission and staff to continue to
explore this approach, among others, so that
the CFTC is able to aggregate all derivatives
transactions by pools under common control.
I would like to thank the Division of Swap
Dealer and Intermediary Oversight for their
efforts in finalizing this rule in a form that
I can support.
[FR Doc. 2020–22874 Filed 11–9–20; 8:45 am]
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