(Proposed Rule) NPRM

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Investment Bank and European
Investment Fund.
*
*
*
*
*
Issued in Washington, DC, on July 27,
2016, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not
appear in the Code of Federal Regulations.

Appendix to Amendment to
Commission Regulation 3.10(c):
Exemption From Registration for
Certain Foreign Persons—Commission
Voting Summary
On this matter, Chairman Massad and
Commissioners Bowen and Giancarlo voted
in the affirmative. No Commissioner voted in
the negative.
[FR Doc. 2016–18210 Filed 8–4–16; 8:45 am]
BILLING CODE 6351–01–P

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 4
RIN 3038–AE47

Commodity Pool Operator Annual
Report
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:

The Commodity Futures
Trading Commission (Commission or
CFTC) is proposing to amend certain of
its regulations applicable to the Annual
Report that each person registered or
required to be registered as a commodity
pool operator (CPO) must distribute for
each commodity pool that it operates
(Proposal). Specifically, the Proposal
addresses the use of additional
alternative generally accepted
accounting principles, standards or
practices, and the Annual Report audit
requirement where the first fiscal year of
a pool consists of a period of three
months or less from the date of
formation of the pool.
DATES: Comments must be received on
or before September 6, 2016.
ADDRESSES: You may submit comments,
identified by RIN 3038–AE47 and
‘‘Commodity Pool Operator Annual
Report,’’ by any of the following
methods:
• CFTC Web site: http://
comments.cftc.gov. Follow the
instructions for submitting comments
through the Comments Online process
on the Web site.
• Mail: Send to Christopher
Kirkpatrick, Secretary of the

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SUMMARY:

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Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW.,
Washington, DC 20581.
• Hand Delivery/Courier: Same as
Mail, above.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
Please submit your comments using
only one of these methods.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to http://
www.cftc.gov. You should submit only
information that you wish to make
available publicly. If you wish the
Commission to consider information
that may be exempt from disclosure
under the Freedom of Information Act
(FOIA), a petition for confidential
treatment of the exempt information
may be submitted according to the
procedures established in Commission
Regulation 145.9.1
The Commission reserves the right,
but shall have no obligation, to review,
pre-screen, filter, redact, refuse or
remove any or all of your submission
from www.cftc.gov that it may deem to
be inappropriate for publication, such as
obscene language. All submissions that
have been redacted or removed that
contain comments on the merits of the
rulemaking will be retained in the
public comment file and will be
considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under the FOIA.
FOR FURTHER INFORMATION CONTACT:
Christopher W. Cummings, Special
Counsel, 202–418–5445, ccummings@
cftc.gov or Barbara S. Gold, Associate
Director, 202–418–5441, [email protected],
Division of Swap Dealer and
Intermediary Oversight, Commodity
Futures Trading Commission, Three
Lafayette Centre, 1155 21st NW.,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. Part 4 of the Commission’s
Regulations
Part 4 of the Commission’s regulations
governs the operations and activities of
CPOs.2 It requires each CPO registered
1 17 CFR 145.9 (2016). The Commission’s
regulations are found at 17 CFR Ch. I (2016). They
are accessible through the Commission’s Web site.
2 Section 1a(11) of the Commodity Exchange Act
(Act or CEA), 7 U.S.C. 1a(11) (2012), defines the
term ‘‘commodity pool operator’’ and CEA Section
4m(1) generally requires each person who comes
within the CPO definition to register as a CPO with
the Commission. The Act is found at 7 U.S.C. et seq.

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or required to be registered with the
Commission: To deliver to each
participant in its commodity pool a
Disclosure Document for the pool
containing specified information
(Regulations 4.21, 4.24, 4.25 and 4.26);
to distribute to each participant periodic
unaudited Account Statements for the
pool (Regulation 4.22(a)) and an audited
Annual Report for the pool (Regulation
4.22(c)); and to make and keep specified
books and records (Regulation 4.23).
Additionally, Part 4 prohibits certain
activities on the part of all CPOs
(Regulations 4.20 and 4.41) and
provides for various CPO definitional
exclusions (Regulation 4.5), CPO
registration exemptions (Regulation
4.13), and compliance exemptions from
otherwise applicable CPO requirements
(Regulations 4.7, 4.12(b), and 4.12(c)).3
Over the past years, and pursuant to
authority delegated to it by Regulation
140.93, Commission staff has provided
exemptive relief from specific Part 4
requirements on a case-by-case basis.4
By this Federal Register release, the
Commission is proposing to codify
certain of these exemptions as
applicable to the Annual Report.
B. Regulation 4.22: The Annual Report
Requirement
Regulation 4.22 requires, in general,
that each CPO registered or required to
be registered with the Commission to
distribute to each participant in each
commodity pool it operates, and to
submit to the National Futures
Association (NFA),5 an Annual Report
for the pool within 90 calendar days
after the end of the pool’s fiscal year.6
(2012). It similarly is accessible through the
Commission’s Web site.
3 Part 4 contains many similar provisions
applicable to commodity trading advisors (CTAs).
The Proposal does not pertain to CTAs, however,
because CTAs do not operate commodity pools
(CPOs do) and therefore there is no Annual Report
requirement applicable to them.
4 These were issued by the Commission’s
Division of Swap Dealer and Intermediary
Oversight (‘‘DSIO’’) and its predecessors, the
Division of Clearing and Intermediary Oversight
and the Division of Trading and Markets.
Regulation 140.93 currently delegates to the
Director of DSIO ‘‘all functions reserved to the
Commission’’ in Regulation 4.12(a)—which
provides that the Commission ‘‘may exempt any
person or any class or classes of persons from any
provision of this Part 4 if it finds that the exemption
is not contrary to the public interest and the
purposes of the provisions from which the
exemption is sought’’ and, further, that the
Commission ‘‘may grant the exemption subject to
such terms and conditions as it may find
appropriate.’’
5 NFA is registered as a futures association in
accordance with CEA Section 17. It is the only
futures association registered as such.
6 Regulation 4.22(c) further requires the CPO to
submit to NFA certain key financial balances from
the Annual Report.

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The regulation: Specifies the financial
statements and related information that
the Annual Report must contain
(Regulation 4.22(c)); requires that the
financial statements must be presented
and computed in accordance with
generally accepted accounting
principles consistently applied (U.S.
GAAP) and that they must be audited by
an independent public accountant
(Regulation 4.22(d)); includes specific
provisions applicable to the Statement
of Operations (Regulation 4.22(e));
provides for an extension of an
otherwise applicable distribution
deadline (Regulation 4.22(f)); governs
fiscal year election (Regulation 4.22(g));
mandates that the Annual Report be
accompanied by a prescribed oath or
affirmation of the CPO (Regulation
4.22(h)); and permits electronic
distribution of the Annual Report to a
participant if the participant consents to
that method of distribution (Regulation
4.22(i)).
In connection with the adoption of
the Annual Report requirement, the
Commission explained that the purpose
of the Annual Report is to provide pool
participants ‘‘with the information
necessary to assess the overall trading
performance and financial condition of
the pool’’ and that the purpose of the
requirement that the Annual Report be
audited is to ‘‘promote greater accuracy
in financial statements and provide an
independent review of the pool’s
activities.’’ 7 The Commission believes
that the amendments it is proposing
today to Regulation 4.22 are consistent
with these purposes.
II. The Proposal

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A. Proposed Amendment to Regulation
4.22(d)(2): Use of Additional Alternative
Generally Accepted Accounting
Principles, Practices or Standards
Regulation 4.22(d) specifies how the
financial statements in the Annual
Report must be presented and
computed. Currently, paragraph (d)(1) of
the regulation requires that these
financial statements must be presented
and computed in accordance with
generally accepted accounting
principles consistently applied, and
paragraph (d)(2) of the regulation makes
available an exception to this
As noted above, Regulation 4.22 also requires
each CPO registered or required to be registered to
distribute to each participant in each commodity
pool it operates an unaudited periodic Account
Statement for the pool. Specifically, Regulation
4.22(a) prescribes the financial information the
Account Statement must contain, and Regulation
4.22(b) prescribes the frequency of distribution of
the Account Statement (quarterly or monthly,
depending on the size of the pool).
7 44 FR 1918, 1922 (Jan. 8, 1979).

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requirement by permitting the use of
International Financial Reporting
Standards (IFRS) where certain criteria
are met. A CPO seeking to avail itself of
Regulation 4.22(d)(2) must claim the
relief by filing a signed notice with NFA
representing that: (1) The pool is
organized under the laws of a foreign
jurisdiction; (2) the Annual Report will
include a schedule of investments
(condensed unless a full schedule is
required under IFRS); (3) the use of
IFRS to prepare the Annual Report is
not inconsistent with representations set
forth in the pool’s disclosures to
participants; (4) any special allocations
of ownership equity will be reported in
accordance with Regulation 4.22(e); and
(5) in the event that IFRS requires
consolidated financial statements for the
pool (e.g., in a master-feeder fund
structure), all applicable disclosures
required by U.S. GAAP will be
provided.
At the time that the Commission
proposed to amend Regulation 4.22(d)
to permit the use of IFRS, it
acknowledged that its staff had also
been granting relief on a case-by-case
basis to allow CPOs operating
commodity pools located outside the
United States to use accounting
standards established in certain other
jurisdictions, and it invited such CPOs
if they otherwise met the criteria of
Regulation 4.22(d)(2) to continue
requesting such relief from staff on a
case-by-case basis.8 The Commission
now believes that staff’s experience with
providing relief to use the accounting
principles, standards or practices
followed in the U.K., Ireland,
Luxembourg, and Canada warrants
extending relief comparable to that
which Regulation 4.22(d) provides for
the use of IFRS. Accordingly, the
Commission is proposing to amend
Regulation 4.22(d)(2) so that it would
also permit the use of generally
accepted accounting principles,
standards or practices followed in the
U.K., Ireland, Luxembourg, or Canada.9
A CPO desiring to avail itself of any of
these additional alternative accounting
8 See 74 FR 8220, 8224 (Feb. 24, 2009).
Subsequent to the Commission amending
Regulation 4.22(d) to permit the use of IFRS,
Commission staff has granted relief to use
accounting principles, standards or practices
established in the United Kingdom (U.K.), Ireland,
Luxembourg and Canada. See, e.g., CFTC Staff
Letter 09–42 (U.K.) and CFTC Staff Letters 15–57
and 14–10 (Luxembourg). Staff Letters are
accessible through the Commission’s Web site.
9 In order to clarify the existing text, the
Commission is also proposing to specify in
Regulation 4.22(d)(1) that the regulatory norm is
that ‘‘[t]he financial statements in the Annual
Report must be presented and computed in
accordance with United States generally accepted
accounting principles. . . .’’ (Emphasis supplied.)

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principles, standards or practices would
be required to claim this relief by filing
a notice with NFA containing the same
representations required for CPOs
desiring to use IFRS.
B. Proposed Amendment to Regulation
4.22(g)(2): Audit Requirement Where the
First Fiscal Year Is a Period of Three
Months or Less From the Date of
Formation of the Pool
As stated above, Regulation 4.22(g)
governs the election of a fiscal year by
a CPO. It: Permits the CPO to initially
elect any fiscal year for its pool,
provided that the pool’s first fiscal year
does not end more than one year after
the pool’s formation; 10 requires notice
to participants and NFA if the CPO
elects other than a calendar year for the
pool’s fiscal year; and requires notice to
participants and NFA prior to changing
the previously-elected fiscal year
(paragraphs (g)(1), (g)(2), and (g)(3),
respectively).
Because Regulation 4.22(c) requires
that an Annual Report be distributed to
pool participants and submitted to NFA
within 90 calendar days after the end of
the pool’s fiscal year, and because
Regulation 4.22(d) requires that the
Annual Report be audited by an
independent public accountant, the
CPO of a pool that was formed, for
example, two months before the end of
the pool’s first fiscal year would be
required to distribute and submit an
audited Annual Report for that twomonth fiscal year, regardless of
particular circumstances—for example,
where there are a limited number of
participants in the pool and a limited
amount of funds have been contributed
to the pool. In those circumstances, the
cost of an audit for the short period of
time of the pool’s operation would
likely be unduly burdensome relative to
the size of the pool.11 Over the past
years, in circumstances such as the
foregoing, Commission staff has issued
exemptions from the requirement that a
separate audited Annual Report be
distributed and submitted for the pool’s
first fiscal year.12
The Commission is now proposing to
amend Regulation 4.22(g)(2) to provide
for an exemption from the audit
requirement applicable to the Annual
Report for a pool’s first fiscal year when
the period from formation of the pool to
the end of the pool’s first fiscal year is
10 Regulation 4.22(g)(1) provides that for these
purposes, a pool is deemed to be formed as of the
date the pool operator first receives funds,
securities or other property for the purchase of an
interest in the pool.
11 See CFTC Staff Letter 01–13.
12 See, e.g., CFTC Staff Letters 16–50 and 15–10.

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a short period of time.13 The existing
text of the regulation would be found in
new paragraph (g)(2)(i) of Regulation
4.22 and the proposed exemption would
be contained in new paragraph (g)(2)(ii)
of Regulation 4.22. As discussed below,
the proposed exemption would specify
the criteria for eligibility and the
procedure to be followed to claim the
exemption. It would also be subject to
compliance with the condition that the
next Annual Report the CPO distributes
and submits is audited and covers the
time period from the formation of the
pool to the end of the pool’s first 12month fiscal year. Under the Proposal,
a CPO could claim this relief where: (1)
The time period from the formation of
the pool to the end of the pool’s first
fiscal year is three months or less; (2)
from the formation of the pool to the
end of the pool’s first fiscal year the
pool had no more than fifteen
participants; and (3) from the formation
of the pool to the end of the pool’s first
fiscal year the total gross capital
contributions received by the CPO for
units of participation in the pool did not
exceed $1,500,000. The Commission is
proposing to use the formation of the
pool as the starting point of the stub
period, and thus the point for
determining eligibility for relief, to
ensure that all CPOs and their pool
participants are on a level playing field
with respect to both what information
the Annual Report must contain for the
pool’s first fiscal year, and the
requirement that such information be
audited.
For the purpose of determining
eligibility for relief, the following
persons and their capital contributions
would not be counted: (1) The pool’s
CPO, its CTA, and any of their
principals; (2) a child, sibling, or parent
of the participants described in category
(1); (3) the spouse of any of the
participants described in category (1) or
(2); (4) any relative of one of the
participants described in categories (1)
through (3); and (5) an entity that is
wholly-owned by one or more of the
participants described in categories (1)
through (4). In this regard, the
Commission notes that the CPO could
count a non-natural person as a single
participant. But if that non-natural
person was also a commodity pool, its
CPO would have to separately qualify
for relief under (proposed) Regulation
4.22(g)(2)(ii) in order for that (second)
13 In

addition to the substantive changes
described below, because the Proposal would add
another exception to the general Annual Report
audit requirement, the introductory text of
Regulation 4.22(d)(1) would be revised to read
‘‘Subject to the provisions of paragraphs (d)(2) and
(g)(2) of this section.’’

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CPO to claim the relief. The 15participant limit and the categories of
participants and respective
contributions that need not be counted
are taken from Regulation 4.13(a)(2),
which makes available a CPO
registration exemption for the operator
of a family, club or small pool.14 The
Commission believes that structuring
the proposed exemption in this way
would avoid unnecessary burdens while
maintaining customer protections.
To avail itself of the relief, a CPO
would be required to obtain, prior to the
date on which the Annual Report for the
pool’s first fiscal year is due, a specified
written waiver of the right to receive an
audited Annual Report for that fiscal
year from each person who has been a
participant in the pool during the first
fiscal year. The CPO would be required
to retain the waiver in accordance with
Regulation 4.23. Then, on or before the
date on which the Annual Report for the
pool’s first fiscal year is due, the CPO
would be required to file a notice of
claim with NFA, along with a
certification that the CPO had received
the specified written waiver from each
of the pool’s participants. This notice
would be based on the notice required
to claim relief to present and compute
an Annual Report in accordance with
IFRS, under existing Regulation
4.22(d)(2)(ii). Finally, the CPO would be
required to include on the cover of each
Annual Report for which relief had been
claimed under Regulation 4.22(g)(2) a
prescribed statement that provided
information on whether the Annual
Report was unaudited or audited and
the period of time that the Annual
Report covered.
C. Proposed Amendment to Regulation
4.22(c)(7): Unavailability of Audit
Requirement Exception
Regulation 4.22(c)(7) makes available
various exceptions to Annual Report
requirements to the CPO of a pool that
ceases operation prior to, or at the end
of, the pool’s fiscal year. In particular,
paragraph (c)(7)(iii) provides that a
report distributed and submitted
14 Briefly stated, Regulation 4.13(a)(2) provides
that a person is not required to register as a CPO
if: (1) None of the commodity pools operated by it
has more than 15 participants; and (2) the total
gross capital contributions it receives from
participants in all of its pools does not in the
aggregate exceed $400,000. The regulation further
provides that for the purpose of determining
eligibility for the exemption, the person may
exclude, among others, the following participants
and their contributions: The pool’s CPO, the pool’s
CTA, and the principals thereof.
The Commission explained that it had adopted
this registration exemption ‘‘because the costs of
compliance with the Part 4 rules outweighs the
benefits to be gained from regulating family, club
and small pools.’’ 44 FR 1918, 1919 (Jan. 8, 1979).

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pursuant to Regulation 4.22(c)(7) is not
required to be audited if the CPO
complies with the conditions stated in
the regulation. To ensure that an audit
is conducted at least once in the life of
a commodity pool, the Commission is
proposing an amendment to paragraph
(c)(7)(iii) of Regulation 4.22 that would
make the audit requirement relief under
that paragraph unavailable where a CPO
has not previously distributed an
audited Annual Report to pool
participants or submitted the audited
Annual Report to NFA—e.g., where the
CPO has claimed relief pursuant to
(proposed) Regulation 4.22(g)(2) and the
pool has ceased operations before the
end of its first twelve-month fiscal year.
III. Request for Comments
The Commission requests comment
generally on all aspects of the Proposal.
In particular, the Commission requests
comment on the following:
1. Is there any information required to
be included in an Annual Report
prepared in accordance with U.S. GAAP
that would not be included under
generally accepted accounting
principles, standards or practices in the
U.K., Ireland, Luxembourg or Canada? If
so, what is that information and should
the Commission require that such
information be separately presented in
an Annual Report prepared under any
such alternative accounting principles,
standards or practices? Are there, for
example, any specific line items where
treatment under one of the referenced
sets of accounting principles, standards
or practices (or under IFRS) differs from
the treatment under U.S. GAAP and for
which reconciliation to U.S. GAAP
should be required?
2. Should the Commission adopt a
provision whereby a CPO could claim
relief from the Annual Report audit
requirement for a pool in which the
only participants were the CPO and one
or more other ‘‘insiders’’ (i.e., the
persons identified in proposed
Regulation 4.22(g)(2)(ii)), regardless of
the amount of capital contributed to the
pool? What other criteria, if any, should
be required?
3. Are there any other issues relevant
to the Proposal that the Commission
should consider?
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires Federal agencies 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

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economic impact on those entities. The
Commission previously has 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.15 With respect
to CPOs, the Commission previously has
determined that a CPO is a small entity
for the purpose of the RFA if it meets
the criteria for an exemption from
registration under Regulation
4.13(a)(2).16 Thus, because the Proposal
applies to persons registered or required
to be registered as a CPO with the
Commission, the RFA is not applicable
to it.
Accordingly, the Chairman, on behalf
of the Commission, hereby certifies
pursuant to 5 U.S.C. 6065(b) that the
Proposal, if adopted, will not have a
significant economic impact on a
substantial number of small entities.

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B. Paperwork Reduction Act
1. Overview
The Paperwork Reduction Act of 1995
(PRA) 17 imposes certain requirements
on Federal agencies (including the
Commission) in connection with
conducting or sponsoring any collection
of information as defined by the PRA. If
adopted, the Proposal would result in a
collection of information within the
meaning of the PRA, as discussed
below. The Commission therefore is
submitting the Proposal to the Office of
Management and Budget (OMB) for
review.
The Proposal contains collections of
information for which the Commission
has previously received control
numbers from OMB. The title for these
collections of information is
‘‘Registration under the Commodity
Exchange Act, OMB control number
3038–0005.’’
The responses to these collections of
information are mandatory. 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 issued by OMB.
The collections of information in this
Proposal would provide to eligible
CPOs: (1) An optional alternative to
complying with the requirement to
compute and present the financial
statements in a pool Annual Report in
accordance with U.S. GAAP (or in
accordance with IFRS); and (2) an
optional alternative to complying with
the audit requirement for the Annual
Report for a pool’s first fiscal year, all
15 See,

e.g., 47 FR 18618 (Apr. 30, 1982).
at 18619–20.
17 44 U.S.C. 3501 et seq.
16 Id.

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as described above. In each case, eligible
persons would have the option to elect
the alternative, but no obligation to do
so. For this reason, except to the extent
that the Commission is amending the
subject OMB control number for PRA
purposes to reflect these alternatives,
the Proposal is not expected to impose
any new burdens on CPOs. Rather, to
the extent that the Proposal provides
alternative means to comply with
existing requirements, and an
alternative is elected by a CPO, it is
reasonable for the Commission to infer
that the alternative is less burdensome
to such CPO.
2. Revisions to Collection 3038–0005
Collection 3038–0005 is currently in
force with its control number having
been provided by OMB. As discussed
above, the Proposal would add a new
exemption to permit a CPO to use
accounting principles, standards or
practices established in the U.K.,
Ireland, Luxembourg or Canada. In
order to qualify for this exemption, an
eligible CPO would be required to take
the steps stated in the Proposal,
including providing appropriate
notification in the pool’s Disclosure
Document and submitting the required
notice to NFA. The Proposal would
further add a new exemption to permit
a CPO to distribute and submit an
unaudited Annual Report for its pool’s
first (partial) fiscal year and an audited
Annual Report for the combined period
covered by the pool’s first (partial) fiscal
year plus the pool’s first twelve-month
fiscal year. In order to qualify for this
exemption, an eligible CPO would be
required to take the steps stated in the
Proposal, including obtaining waivers
from pool participants, submitting the
required notice and certification to
NFA, providing appropriate notification
in the Annual Report, and maintaining
the waivers as records. Requiring such
actions on the part of an eligible CPO
would result in revisions to collection
3038–0005. Therefore, the Commission
proposes to revise collection 3038–0005.
Commission staff has received
approximately 8 requests in each of
2014 and 2015 from CPOs asking for
relief from the requirement to prepare
the pool’s financial statements in
accordance with U.S. GAAP. If the same
relief can be claimed with a notice filing
(without submitting a request for an
individual exemptive letter) additional
CPOs are likely to apply. Therefore, the
Commission estimates that CPOs will
submit 10 notices per year to take
advantage of the alternative provided in
this Proposal. Similarly, because staff
has received approximately 10 requests
in each of 2014 and 2015 from CPOs

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asking for relief from the requirement to
distribute and submit an audited
Annual Report for a pool’s first fiscal
year, the Commission estimates that
CPOs will submit 12 notices per year to
take advantage of the alternative
provided in this Proposal.
Collection 3038–0005 relates to
collections of information from CPOs
and other Commission registrants.
Based on the above, the estimated
additional hour burden for collection
3038–0005 of 34 hours is calculated as
follows:
a. Estimated Additional Hour Burden
for Collection 3038–0005 Due to
Proposed Alternative to Complying
With Requirement To Present and
Compute a Pool’s Financial Statements
According to U.S. GAAP
Anticipated number of claimants: 10.
Frequency of collection: As needed
(initial filing and subsequent
compliance).
Estimated annual responses per
claimant: 1.
Estimated aggregate number of
annual responses: 10.
Estimated annual hour burden per
registrant: 1 hr.
Estimated aggregate annual hour
burden: 10 (10 claimants × 1 hour per
claimant).
b. Estimated Additional Hour Burden
for Collection 3038–0005 Due to
Proposed Alternative to Complying
With Requirement To Distribute and
Submit an Audited Annual Report for a
Pool’s First Fiscal Year
Number of claimants: 12.
Frequency of collection: As needed
(initial filing and subsequent
compliance and recordkeeping).
Estimated annual responses per
claimant: 1.
Estimated aggregate number of
annual responses: 12.
Estimated annual hour burden per
claimant: 2.18
Estimated aggregate annual hour
burden: 24 (12 claimants × 2 hours per
claimant).
3. Information Collection Comments
The Commission invites the public
and other Federal agencies to comment
on any aspect of the proposed
information collection requirements
discussed above. Pursuant to 44 U.S.C.
3506(c)(2)(B), the Commission solicits
comments in order to: (1) Evaluate
whether the proposed collection of
information is necessary for the proper
18 This figure for annual hour burden per
claimant includes one hour for reporting and one
hour for recordkeeping.

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performance of the functions of the
Commission, including whether the
information will have practical utility;
(2) evaluate the accuracy of the
Commission’s estimate of the burden of
the proposed collection of information;
(3) determine whether there are ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(4) minimize the burden of the
collection of information on those who
are to respond, including through the
use of automated collection techniques
or other forms of information
technology.
Comments may be submitted directly
to the Office of Information and
Regulatory Affairs, by fax at (202) 395–
6566, or by email at OIRAsubmissions@
omb.eop.gov. Please provide the
Commission with a copy of submitted
comments so that all comments can be
summarized and addressed in the
preamble of the adopting Federal
Register release. Refer to the ADDRESSES
section of this notice of proposed
rulemaking for instructions on
submitting comments to the
Commission. A copy of the supporting
statements for the collection of
information discussed above may be
obtained by visiting http://RegInfo.gov.
OMB is required to make a decision
concerning the collection of information
between 30 and 60 days after
publication of this document in the
Federal Register. Therefore, a comment
is best assured of having its full effect
if OMB receives it within 30 days of
publication.

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C. Cost-Benefit Considerations
Section 15(a) of the Act 19 requires the
Commission to consider the costs and
benefits of its actions before
promulgating a regulation or issuing
certain orders under the Act. Section
15(a) further requires the Commission to
evaluate the costs and benefits of any
such proposed action in light of five
specified areas of consideration,
discussed below. The baseline against
which the Proposal is compared is the
status quo, i.e., current Regulations
4.22(c)(7), 4.22(d)(2) and 4.22(g).
1. Summary of the Proposal
The Proposal would require a CPO to
make a notice filing in order to be able
either to use alternative accounting
principles, standards or practices other
than U.S. GAAP or IFRS, or to distribute
and submit an unaudited Annual Report
for its pool’s first (partial-year) fiscal
year and an audited Annual Report that
combines information for the pool’s first
(partial-year) fiscal year with
19 7

U.S.C. 19(a).

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information for the following, first
twelve-month fiscal year. In either case,
the required filing is patterned after that
required by existing Regulation
4.22(d)(2) that a CPO must submit in
order to use IFRS. Thus, the notice
would contain such information as the
CPO’s name, address and telephone
number, the NFA identification
numbers of the CPO and the pool, and
representations that the CPO complies
with the requisite criteria. Additionally,
in the second case, the notice would
include a certification that the CPO had
obtained written waivers from pool
participants of their right to receive an
audited Annual Report for the pool’s
first (partial-year) fiscal year. Finally,
the Proposal makes unavailable the
audit requirement exemption in
Regulation 4.22(c)(7), such that the CPO
of a pool that is opened and closed in
the same fiscal year must distribute and
submit audited financial statements.
2. Costs
The Commission believes that the
differences in the costs of compliance
between the Proposal and existing
Regulations 4.22(d)(2) and 4.22(g)
would be small because the notice filing
is designed to mimic the relevant
features of existing Regulation
4.22(d)(2). Nevertheless, the
Commission believes that the Proposal
will lower costs to CPOs relative to a
case-by-case staff-issued exemption,
because the Proposal is more
standardized. In addition, due to the
unavailability of the audit requirement
exemption, there is a small cost to the
CPO of a pool that is opened and closed
in the same fiscal year, because the CPO
would now have to distribute and
submit audited financial statements for
the pool.
There may also be some cost savings
if the conditions of the exemption are
met, because a CPO who operated a pool
that met those conditions would be
allowed to distribute to shareholders
and submit to NFA an unaudited
Annual Report for its pool’s first
(partial-year) fiscal year and an audited
Annual Report that combines
information for the pool’s first (partialyear) fiscal year with information for the
following, first twelve-month fiscal year.
The Commission believes that the
envisioned costs savings would be due
to the independent public accountant
only needing to conduct an audit of the
pool once and only issuing one opinion
on the pool’s financial statements. The
Commission seeks comment concerning
whether or not the Proposal will reduce
costs for CPOs relative to existing
Regulations 4.22(d)(2) and 4.22(g).

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3. Benefits
An advantage of a notice filing over a
Commission staff-processed exemption
is timeliness. For instance, a CPO that
filed a notice under the Proposal would
not have to wait for Commission staff to
process a request for an individual
exemption letter. There is also the
benefit that pool participants would
receive financial statements for the
pool’s first fiscal year.
The Commission believes there will
be no net benefit from the Proposal as
compared to existing Regulations
4.22(d)(2) and 4.22(g) with respect to
financial disclosures. By codifying
exemptions previously provided by
Commission staff on a case-by-case
basis, the Proposal would continue to
assist pool participants by providing
them the information necessary to
assess the overall trading performance
and financial condition of their pool,
but with a lower overall burden to
certain CPOs. The Commission believes
that pool participants are
knowledgeable enough to evaluate
financial statements prepared under
principles, standards or practices
established in the U.K., Ireland,
Luxembourg or Canada, provided that
the relevant accounting principles,
standards or practices are properly
disclosed to them. The Commission
seeks public comment concerning
whether or not use of the specified
different systems of accounting
principles, standards and practices
might lead to material differences in
financial statements that pool
participants might not be able to
understand. For example, should the
Commission require CPOs to disclose in
the footnotes to the pool’s financial
statements when material difference
exist between U.S. GAAP and
alternative accounting principles,
standards or practices? Additionally, the
Commission believes that there will be
minimal loss in the level of confidence
of pool participants in their pool’s
financial statements, because an
independent public accountant will still
have to issue an opinion on an audited
Annual Report that combines
information for the pool’s first (partialyear) fiscal year with information for the
following, first twelve-month fiscal year.
The Commission seeks public comment
concerning whether this belief is correct
or not.
4. Section 15(a) Factors
As noted above, Section 15(a) of the
Commodity Exchange Act (CEA or Act)
requires the Commission to consider the
costs and benefits of its actions before
promulgating a regulation or issuing

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Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Proposed Rules
certain orders. As also noted above, CEA
Section 15(a) further specifies that the
Commission shall evaluate the costs and
benefits of its actions in light of five
specific concerns. Those concerns relate
to: (i) Protection of market participants
and the public; (ii) efficiency,
competitiveness, and financial integrity
of futures markets; (iii) price discovery;
(iv) sound risk management practices;
and (v) other public interest
considerations.
i. Protection of Market Participants and
the Public
The Commission believes that the
Proposal will provide the same level of
protection to commodity pool
participants through the disclosure of
financial statements as do existing
Regulations 4.22(d)(2) and 4.22(g). The
Commission believes that pool
participants are knowledgeable enough
to evaluate financial statements
prepared under accounting principles,
standards and practices established in
the U.K., Ireland, Luxembourg or
Canada, provided that the relevant
accounting principles, standards and
practices are properly disclosed to them.
By codifying exemptions previously
provided by Commission staff on a caseby-case basis, the Proposal would
continue to assist pool participants by
providing them the information
necessary to assess the overall trading
performance and financial condition of
their pool, but with a lower overall
burden to certain CPOs. Additionally,
the Commission believes that there will
be minimal loss in the level of
confidence of pool participants in their
pool’s financial statements, because an
independent public accountant will still
have to issue an opinion on the
financial statements included in an
Annual Report that combines
information for the pool’s first (partialyear) fiscal year with information for the
following, first twelve-month fiscal year.
ii. Efficiency, Competitiveness, and
Financial Integrity of Markets
The Commission has not identified
any impact that the Proposal would
have on efficiency, competitiveness, and
financial integrity of markets.

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iii. Price Discovery
The Commission has not identified
any impact that the Proposal would
have on price discovery.
iv. Sound Risk Management Practices
The Commission has not identified
any impact that the Proposal would
have on sound risk management
practices.

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v. Other Public Interest Considerations
The Commission has not identified
any impact on any other public interest
considerations that the Proposal would
have, but seeks public comment on any
public interest the Commission should
consider in this rulemaking.
5. Request for Comments
The Commission invites public
comment on its cost-benefit
considerations, including the Section
15(a) factors described above.
Commenters are invited to submit with
their comment letters any data or other
information that they may have that
quantifies or qualifies the costs and
benefits of the Proposal.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity
futures, Commodity pool operators,
Commodity trading advisors, Consumer
protection, Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, the Commodity Futures
Trading Commission proposes to amend
17 CFR part 4 as follows:
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. Amend § 4.22 as follows:
a. Revise paragraphs (c)(7)(iii) and (d);
b. Redesignate paragraph (g)(2) as
paragraph (g)(2)(i); and
■ c. Add paragraph (g)(2)(ii).
The revisions and addition to read as
follows:
■
■
■

§ 4.22

Reporting to pool participants.

*

*
*
*
*
(c) * * *
(7) * * *
(iii) A report filed pursuant to
paragraph (c)(7) of this section that
would otherwise be required by
paragraph (c) of this section is not
required to be audited in accordance
with paragraph (d) of this section if the
commodity pool operator obtains from
all participants written waivers of their
rights to receive an audited Annual
Report, and at the time of filing the
Annual Report with the National
Futures Association, certifies that it has
received waivers from all participants.
The commodity pool operator must
maintain the waivers in accordance
with § 1.31 of this chapter and must
make the waivers available to the
Commission or National Futures

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51833

Association upon request.
Notwithstanding the provisions of
paragraph (g)(2)(ii) of this section, the
relief made available by this paragraph
(c)(7)(iii) shall not be available where
the commodity pool operator has not
previously distributed an audited
Annual Report to pool participants and
submitted an audited Annual Report to
the National Futures Association.
*
*
*
*
*
(d)(1) Subject to the provisions of
paragraphs (d)(2) and (g)(2) of this
section, the financial statements in the
Annual Report required by this section
or by § 4.7(b)(3) must be presented and
computed in accordance with United
States generally accepted accounting
principles consistently applied and
must be audited by an independent
public accountant. The requirements of
§ 1.16(g) of this chapter shall apply with
respect to the engagement of such
independent public accountants, except
that any related notifications to be made
may be made solely to the National
Futures Association, and the
certification must be in accordance with
§ 1.16 of this chapter, except that the
following requirements of that section
shall not apply:
*
*
*
*
*
(2)(i) Where a commodity pool is
organized in a jurisdiction other than
the United States, the financial
statements in the Annual Report
required by this section or by § 4.7(b)(3)
may be presented and computed in
accordance with the generally accepted
accounting principles, standards or
practices followed in such other
jurisdiction; Provided, That:
(A) The other jurisdiction follows
accounting principles, standards or
practices set forth in paragraph (d)(2)(ii)
of this section and the Annual Report
presents and computes the financial
statements of the pool in accordance
with the applicable accounting
principles, standards or practices
followed by such other jurisdiction;
(B) The Annual Report includes a
condensed schedule of investments, or,
if required by the applicable accounting
principles, standards or practices
followed by such other jurisdiction, a
full schedule of investments;
(C) The Annual Report reports special
allocations of ownership equity in
accordance with paragraph (e)(2) of this
section;
(D) The Disclosure Document or
offering memorandum for the pool
identifies the accounting principles,
standards or practices of the other
jurisdiction pursuant to which the
Annual Report presents and computes
the financial statements of the pool; and

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(E) Where the accounting principles,
standards or practices of the other
jurisdiction require consolidated
financial statements for the pool, such
as a feeder fund consolidating with its
master fund, all applicable disclosures
required by United States generally
accepted accounting principles for the
feeder fund must be presented with the
reporting pool’s consolidated financial
statements.
(ii) For purposes of paragraph (d)(2)(i)
of this section, the following alternative
accounting principles, standards or
practices may be employed in the
preparation and computation of the
financial statements in the Annual
Report of the commodity pool;
Provided, That any such alternative
accounting principles, standards or
practices so employed are those
followed by the jurisdiction other than
the United States in which the
commodity pool is organized:
(A) International Financial Reporting
Standards;
(B) Generally Accepted Accounting
Practice in the United Kingdom;
(C) New Irish Generally Accepted
Accounting Practice;
(D) Luxembourg Generally Accepted
Accounting Principles; or
(E) Canadian Generally Accepted
Accounting Principles.
(iii) To claim the relief available
under this paragraph (d)(2), a
commodity pool operator must file a
notice with the National Futures
Association within 90 calendar days
after the end of the pool’s first fiscal
year.
(A) The notice must contain: The
name, main business address, main
telephone number and National Futures
Association registration identification
number of the commodity pool operator;
the name and identification number of
the commodity pool for which the pool
operator is claiming relief; and the
alternative accounting principles,
standards or practices pursuant to
which the financial statements in the
Annual Report will be presented and
computed;
(B) The notice must include a
representation that the commodity pool
operator complies with each of the
conditions specified in paragraphs
(d)(2)(i)(A) through (D) of this section
and, if applicable, paragraph (d)(2)(i)(E)
of this section; and
(C) The notice must be signed by the
commodity pool operator in accordance
with paragraph (h) of this section.
*
*
*
*
*
(g) * * *
(2)(i) If a commodity pool operator
elects a fiscal year other than the

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calendar year, it must give written
notice of the election to all participants
and must file the notice with the
National Futures Association within 90
calendar days after the date of the pool’s
formation. If this notice is not given, the
pool operator will be deemed to have
elected the calendar year as the pool’s
fiscal year.
(ii) If the time period from the
formation of the pool to the end of the
pool’s first fiscal year is three months or
less, the first Annual Report for the pool
may be unaudited; Provided, That:
(A) Throughout the period of
formation through the end of the pool’s
first fiscal year, the pool had no more
than fifteen participants and no more
than $1,500,000 in aggregate gross
capital contributions. For the purpose of
satisfying these criteria, the commodity
pool operator may exclude the following
persons and their contributions:
(1) The pool operator, the pool’s
commodity trading advisor, and any
principal thereof;
(2) A child, sibling, or parent of any
of these participants;
(3) The spouse of any participant
specified in paragraph (g)(2)(i)(A)(1) or
(2) of this section;
(4) Any relative of a participant
specified in paragraph (g)(2)(i)(A)(1), (2)
or (3) of this section, its spouse or a
relative of its spouse, who has the same
principal residence as such participant;
and
(5) An entity that is wholly-owned by
one or more participants specified in
paragraph (g)(2)(ii)(A)(1), (2), (3) or (4)
of this section; and
(B) The next Annual Report for the
pool is audited and covers the time
period from the formation of the pool to
the end of the pool’s first 12-month
fiscal year.
(C) To claim the relief available under
paragraph (g)(2)(ii) of this section, a
commodity pool operator must:
(1) Prior to the date upon which it is
required to distribute and submit an
audited Annual Report for the pool’s
first fiscal year, obtain from each pool
participant who otherwise would have
been entitled to such an Annual Report
a written waiver of the participant’s
right to receive an audited Annual
Report for the pool’s first fiscal year.
The waiver must be signed by the pool
participant and must state as follows:
‘‘[Name of participant], a participant in
[Name of pool], voluntarily waives the
right under CFTC Regulation 4.22(d) to
receive an audited Annual Report for
the fiscal year ended [end date of the
pool’s first fiscal year] and will accept
in lieu thereof an unaudited Annual
Report covering the period [date of
formation of the pool] through [end of

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the pool’s first fiscal year] and an
audited Annual Report covering the
period [date of formation of the pool]
through [end date of the pool’s first
twelve-month fiscal year].’’; and
(2) On or before the date upon which
it is required to distribute and submit
the Annual Report for the pool’s first
fiscal year, file a notice with the
National Futures Association, along
with a certification that it has received
the required written waiver from each
person who has been a participant in
the pool for its first fiscal year.
(i) The notice must contain: The
name, main business address, main
telephone number and National Futures
Association registration identification
number of the commodity pool operator;
the name and identification number of
the commodity pool for which the pool
operator is claiming relief; and the dates
of formation of the pool and the first
fiscal year end of the pool;
(ii) The notice must include a
representation that the commodity pool
operator meets the criteria of paragraph
(g)(2)(ii)(A) of this section and that it
will comply with the condition of
paragraph (g)(2)(ii)(B) of this section;
and
(iii) The notice must be signed by the
commodity pool operator in accordance
with paragraph (h) of this section.
(D)(1) Each unaudited Annual Report
for which the relief available under
paragraph (g)(2)(ii) of this section has
been claimed must prominently disclose
on the cover page thereof: ‘‘Pursuant to
an exemption from the Commodity
Futures Trading Commission, this
unaudited Annual Report covers the
period from the date of formation of the
pool to the end of the pool’s first fiscal
year, a period of [number] months.’’
(2) The next Annual Report for the
pool must prominently disclose on the
cover page thereof: ‘‘Pursuant to an
exemption from the Commodity Futures
Trading Commission, this audited
Annual Report covers the period from
the date of formation of the pool to the
end of the pool’s first 12-month fiscal
year, a period of [number] months.’’
(E) The commodity pool operator
must maintain in accordance with § 4.23
of this chapter each waiver it has
obtained to claim the relief available
under paragraph (g)(2)(ii) of this section.
*
*
*
*
*
Issued in Washington, DC, on July 29,
2016, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not
appear in the Code of Federal Regulations.

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Appendix to Commodity Pool Operator
Annual Report—Commission Voting
Summary
On this matter, Chairman Massad and
Commissioners Bowen and Giancarlo voted
in the affirmative. No Commissioner voted in
the negative.
[FR Doc. 2016–18400 Filed 8–4–16; 8:45 am]
BILLING CODE 6351–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG–105005–16]
RIN 1545–BN33

Election Into the Partnership Audit
Regime Under the Bipartisan Budget
Act of 2015
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary
regulations.
AGENCY:

This document contains
proposed regulations pursuant to
section 1101(g)(4) of the Bipartisan
Budget Act of 2015 regarding an
election to apply the new partnership
audit regime enacted by that act to
certain returns of a partnership. The
regulations provide the time, form, and
manner for making this election. The
regulations affect any partnership that
wishes to elect to have the new
partnership audit regime apply to its
returns filed for certain taxable years
beginning before January 1, 2018.
DATES: Written or electronic comments
and requests for a public hearing must
be received by October 4, 2016.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–105005–16), Room
5207, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to: CC:PA:LPD:PR (REG–105005–
16), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC 20224, or sent
electronically via the Federal
eRulemaking Portal at http://
www.regulations.gov (IRS REG–105005–
16). The public hearing will be held in
the Auditorium, Internal Revenue
Service Building, 1111 Constitution
Avenue NW., Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT:
Jenni M. Black at (202) 317–6834 (not a
toll-free number).

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SUMMARY:

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Background and Explanation of
Provisions
This notice of proposed rulemaking
cross-references to temporary
regulations published in the Rules and
Regulations section of this issue of the
Federal Register. The temporary
regulations amend the Procedure and
Administration Regulations (26 CFR
part 301) to provide rules for the time,
form, and manner of making the
election under section 1101(g)(4) of the
Bipartisan Budget Act of 2015, Public
Law 114–74 (BBA) for taxable years
beginning after November 2, 2015 and
before January 1, 2018. The BBA was
enacted on November 2, 2015, and was
amended by the Protecting Americans
from Tax Hikes Act of 2015, Public Law
114–113, div. Q (PATH Act) on
December 18, 2015.
The text of the temporary regulations
also serves as the text of these proposed
regulations. The Background and
Explanation of Provisions contained in
the preamble to the temporary
regulations explains these proposed
regulations.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact assessment is not
required.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby
certified that the collection of
information contained in this regulation
will not have a significant economic
impact on a substantial number of small
entities. This certification is based on
the fact that the collection of
information contained in this regulation
is voluntary and will only occur if a
partnership elects into the new
partnership audit regime enacted by the
BBA for taxable years beginning after
November 2, 2015 and before January 1,
2018. In addition, the new partnership
audit regime is new, and the IRS has yet
to provide guidance on the application
of the new partnership audit regime
generally. As a result, the IRS estimates
that there will not be a substantial
number of small entities that elect into
the regime for an eligible taxable year.
However, even if a substantial number
of small entities elect into the new BBA
regime for an eligible taxable year, the
election under this regulation requires
only a short statement containing
limited and readily available
information. Therefore, the IRS
estimates that the economic impact on
electing small entities will not be

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significant. Accordingly, a regulatory
flexibility analysis is not required.
Pursuant to section 7805(f) of the
Code, these regulations were submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business.
Comments and Request for a Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
electronic and written comments (a
signed original and eight (8) copies) that
are submitted timely to the IRS. The IRS
and Treasury request comments on all
aspects of the proposed rules. All
comments will be available for public
inspection and copying. A public
hearing may be scheduled if requested
in writing by a person that timely
submits written comments. If a public
hearing is scheduled, notice of the date,
time, and place of the hearing will be
published in the Federal Register.
Drafting Information
The principal author of these
proposed regulations is Jenni M. Black
of the Office of the Associate Chief
Counsel (Procedure and
Administration). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects in 26 CFR Part 301
Income taxes, Penalties, Reporting
and recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation
for part 301 is amended by adding an
entry in numerical order to read as
follows:

■

Authority: 26 U.S.C. 7805 * * *

*

*

*

*

*

Section 301.9100–22 also issued under
section 1101(g)(4) of Pub. L. 114–74.

*

*
*
*
*
Par. 2. Section 301.9100–22 is added
to read as follows:

■

§ 301.9100–22 Time, form, and manner of
making the election under section
1101(g)(4) of the Bipartisan Budget Act of
2015 for taxable years beginning after
November 2, 2015 and before January 1,
2018.

[The text of this proposed section is
the same as the text of § 301.9100–22T

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