as, and the only language on, the first page of the Disclosure Document:

RISK DISCLOSURE STATEMENT THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING:

(1) IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIMUM AND OF ALL TRANSACTION COSTS.

(2) IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUIRED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.

(3) UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT MOVE.”

(4) THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A “STOPLOSS" OR "STOP-LIMIT” ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.

(5) A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT" POSITION.

(6) THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.

IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT

(ii) If the commodity trading advisor is not also a registered futures commission merchant, the trading advisor must make the additional following statement in the Risk Disclosure Statement, to be prominently disclosed as the last paragraph thereof:

THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH A FUTURES COMMISSION MERCHANT.

(9) The following Cautionary Statement, to be prominently disclosed on the cover page of the Document:

"THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT."

ON

(b)(1) If the commodity trading advisor knows or should know that the Disclosure Document is materially inaccurate or incomplete in any respect, it must correct that defect and must distribute the correction to:

(i) All existing clients in the trading program within 21 calendar days of the date upon which the trading advisor first knows or has reason to know of the defect, and

(ii) Each previously solicited prospective client for the trading program prior to entering into an agreement to direct or to guide such prospective client's commodity interest account pursuant to the program.

The trading advisor may furnish the correction by way of an amended Document, a sticker on the Document, or other similar means.

(2) The trading advisor may not use the Document until such correction is made.

(c) The commodity trading advisor must date each Disclosure Document and amendment thereto as of the date it is first used.

(d) The commodity trading advisor may not enter into an agreement with a prospective client to direct the client's commodity interest account or to guide the client's commodity interest trading unless the trading advisor first receives from the prospective client an acknowledgement signed and dated by the prospective client stating that the client received a Disclosure Document for the trading program pursuant to which the trading advisor will direct his account or will guide his trading.

(e)(1) Subject to paragraph (b) of this section, all information contained in the Disclosure Document must be current as of the date of the Document; Provided, however, That performance information must be current as of a date not more than three months preceding the date of the Document.

(2) The commodity trading advisor may not use a Disclosure Document dated more than six months preceding the date of its use.

(f)(1)(i) The commodity trading advisor must file with the Commission three copies of the Disclosure Document for each trading program that it offers or that it intends to offer not less than 21 calendar days prior to the date the trading advisor first intends to give the Document to a prospective client in the trading program. The trading advisor must specify with the filing the date it first intends to deliver the Document to a prospective client.

(2) The commodity trading advisor must file with the Commission three copies of all subsequent amendments to the Disclosure Document for each trading program that it offers or that it intends to offer within 21 calendar days of the date upon which the trading advisor first knows or has reason

to know of the defect requiring the amendment.

(g) This section does not relieve a commodity trading advisor from any obligation under the Act or the regulations thereunder, including the obligation to disclose all material information to existing or prospective clients even if the information is not specifically required by this section. (Approved by the Office of Management and Budget under control number 30380005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m. 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)–(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981; 46 FR 26761, May 15, 1981; 46 FR 56171, Nov. 16, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 FR 57011, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983]

§ 4.32 Recordkeeping.

Each commodity trading advisor reg istered or required to be registered under the Act must make and keep the following books and records in an accurate, current and orderly manner at its main business office and in ac cordance with § 1.31. If the commodity trading advisor's main business office is located outside the United States its territories or possessions, then upon the request of a Commission representative the trading advisor must provide such books and records as requested at the place designated by the representative in the United States, its territories or possessions within 72 hours after receipt of the request.

(a) Concerning the clients and subscribers of the commodity trading advisor:

(1) The name and address of each client and each subscriber.

(2) The acknowledgement specified in § 4.31(d).

(3) All powers of attorney and other documents, or copies thereof, authorizing the commodity trading advisor to direct the commodity interest account of a client or subscriber.

(4) All other written agreements, or copies thereof, entered into by the commodity trading advisor with any client or subscriber.

(5) A list or other record of all commodity interest accounts of clients di

rected by the commodity trading advisor and of all transactions effected therefor.

(6) Copies of each confirmation of a commodity interest transaction, each purchase and sale statement and each monthly statement received from a futures commission merchant.

(7) The original or a copy of each report, letter, circular, memorandum, publication, writing, advertisement or other literature or advice (including the texts of standardized oral presentations and of radio, television, seminar or similar mass media presentations) distributed or caused to be distributed by the commodity trading advisor to any existing or prospective client or subscriber, showing the first Idate of distribution if not otherwise shown on the document.

(b) Concerning the commodity trading advisor:

(1) An itemized daily record of each commodity interest transaction of the commodity trading advisor, showing the transaction date, quantity, commodity interest, and, as applicable, price or premium, delivery month or expiration date, whether a put or a call, strike price, underlying contract for future delivery or underlying physical, the futures commission merchant carrying the account and the introducing broker, if any, whether the commodity interest was purchased, sold, exercised, or expired, and the gain or loss realized.

(2) Each confirmation of a commodity interest transaction, each purchase and sale statement and each monthly statement furnished by a futures commission merchant to (i) the commodity trading advisor relating to a personal account of the trading advisor, and (ii) each principal of the trading advisor relating to a personal account of such principal.

(3) Books and records of all other transactions in all other business dealings in trading commodity interests and of all cash market transactions in which the commodity trading advisor and each principal thereof engages. Those books and records must include, as applicable, books and records of the type specified in paragraphs (a)(1) through (a)(7) of this section and in

paragraphs (a)(1) through (a)(8) of § 4.23.

(Approved by the Office of Management and Budget under control number 30380005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 552b)) [46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 FR 57012, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983]

Subpart D-Advertising

§ 4.40 [Reserved]

§ 4.41 Advertising by commodity pool operators, commodity trading advisors, and the principals thereof.

(a) No commodity pool operator, commodity trading advisor, or any principal thereof, may advertise in a manner which:

(1) Employs any device, scheme or artifice to defraud any participant or client or prospective participant or client; or

(2) Involves any transaction, practice or course of business which operates as a fraud or deceit upon any participant or client or any prospective participant or client.

(b)(1) No person may present the performance of any simulated or hypothetical commodity interest account, transaction in a commodity interest or series of transactions in a commodity interest of a commodity pool operator, commodity trading advisor, or any principal thereof, unless such performance is accompanied by the following statement: "Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is

likely to achieve profits or losses similar to those shown."

(2) If the presentation of such simulated or hypothetical performance is other than oral, the prescribed statement must be prominently disclosed.

(c) The provisions of this section shall apply:

(1) To any publication, distribution or broadcast of any report, letter, circular, memorandum, publication, writing, advertisement or other literature or advice, including the texts of standardized oral presentations and radio, television, seminar or similar mass media presentations, and

of

§ 5.2 Dormant contract.

(a) Definitions. For the purpose of this section the term "dormant contract" means any commodity futures contract; (1) in which no trading has occurred in any future listed for trading for a period of six complete calendar months; or (2) which has been certified by a contract market to the Commission to be a dormant contract.

(b) Listing of additional trading months. Once a futures contract becomes a "dormant contract," no contract market may list or permit trad

ing to recommence in such a dormant contract for additional trading months until such time as the Commission approves, pursuant to section 5a(12) of the Act and § 1.41(b) of these regulations, the bylaw, rule, regulation or resolution of the contract market submitted to the Commission pursuant to paragraph (c) of this section.

(c) Bylaw, rule, regulation or resolution to list additional trading months: (1) Any bylaw, rule, regulation or resolution of a contract market to list additional trading months in a dormant contract or to otherwise recommence trading in such a contract shall be submitted to the Commission under section 5a(12) of the Act and § 1.41(b) of these regulations. The Commission shall approve such bylaw, rule, regulation or resolution, within thirty days of receipt, unless the Commission:

(i) Advises the contract market that specified information is required to complete its review; or

(ii) Notifies the contract market that the Commission's review may take longer than thirty days; or

(iii) Determines that the bylaw, rule, regulation or resolution is one of major economic significance pursuant to section 5a(12) of the Act and publishes it for comment in the FEDERAL REGISTER.

(2) Each submission shall include the information required to be submitted pursuant to § 1.41(b) of these regulations, and also shall:

(i) Clearly designate the submission as filed pursuant to Commission Rule 5.2.

(ii) Contain an economic justification for the listing of additional months in the dormant contract, which shall include an explanation of those economic conditions which have changed subsequent to the time the contract became dormant and an explanation of how any new terms and conditions which are now being proposed by the contract market would make it reasonable to expect that the contract will be used on more than an occasional basis for hedging or price basing.

(d) Exemptions. No contract shall be considered dormant until the end of thirty-six (36) complete calendar months: (1) following designation; or

(2) following notice to the contract market that the Commission has reviewed the economic purpose and the terms and conditions of the contract and has determined in its discretion to permit this exemption; or (3) following Commision approval of the contract market bylaw, rule, regulation, or resolution submitted pursuant to paragraph (c) of this section.

§ 5.3 Low volume contract.

(a) Definitions. For purposes of this section:

(1) The term "low volume contract" means any commodity futures contract in which the trading volume in all futures listed for trading falls below 1,000 contracts per calendar month during at least four of any six consecutive calendar months.

(2) The term "low volume trading period" means any period of six consecutive calendar months during which time the monthly contract volume in all futures listed for trading falls below 1,000 contracts during at least four of such calendar months. Unless otherwise provided by the Commission, by notice to the contract market, the "low volume trading period" shall not include any of the calendar months within a prior low volume trading period. The initial low volume period for existing contracts will begin to be calculated on [90 days after publication].

(b) Submission of report on low volume contract to the Commission. For every low volume contract, a contract market shall file with the Commission within the time specified in paragraph (d) of this section, a report which includes the following:

(1) For the last three consecutive months during the low volume trading period, the proportion of trading during the low-volume trading period which represents the trading of floor brokers and traders as follows:

(i) Trading for their own account or accounts which they control.

(ii) Trading for their clearing members' house accounts.

(iii) Trading for any other type of account.

(2) For each of the last three monthend business days during the low volume period or any other three days

during the last four months of the low volume period which are at intervals of approximately one month: (i) The identification of commercial participants holding open positions, a description of the commodity commitment or other price risk, if any, those participants are hedging, and a listing of each such participant's positions in individual futures on those dates; or (ii) other relevant statistical evidence which demonstrates that the contract is being used by commercial participants for hedging.

(3) A brief statement explaining additional surveillance procedures, if any, which the contract market has instituted to monitor trade practices in the low volume contract. One copy of this report shall be furnished to the Commission at its Washington, D.C. headquarters.

(c) Exemptions from reporting requirement. (1) Reports under paragraph (b) of this section shall not be required until the end of thirty-six (36) complete calendar months: (i) Following designation; (ii) following notice to the contract market that the Commission has reviewed the economic purpose and the terms and conditions of the contract and has determined in its discretion to permit this exemption; or (iii) following Commission approval of a contract market bylaw, rule, regulation or resolution submitted pursuant to paragraph (c) of § 5.2 of these regulations.

(2) Reports under paragraph (b) of this section shall not be required in whole or in part, for a period and/or level to be determined by the Commission in its discretion, upon a showing that past reports demonstrate that commercial participation is sufficient to establish that the contract market continues to serve an economic purpose, that commercial participation is expected to remain at the levels indicated in the prior reports, and that surveillance methods are in place to adequately monitor the market. Petitions to the Commission for such an exemption must be filed as part of a report required under paragraph (b) of this section.

(3) A report required under paragraph (b) of this section shall not be required if during a low volume period