CFTC Staff Letter 00-28: Exemption for CPO Employee Investment in Rule 4.7 Exempt Pool

00-28
CFTC Letter No. 00-28
March 10, 2000
Exemption
Division of Trading & Markets
Re: Rule 4.7(a): -- Request for Exemption to Permit Employee to Invest in a Rule 4.7 Exempt Pool and from the Ten Percent Limitation on Assets Invested in Exempt Pools. Dear :
This is in response to your letter dated September 29, 1999 to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by your letter dated February 22, 2000 and telephone conversations with Division staff. By your correspondence, you request an exemption from Rule 4.7(a)1 on behalf of "X", a registered commodity pool operator ("CPO") that serves as the CPO and general partner of the Fund, so that "X" may treat one of its employees, for purposes of investment in the Fund, as if he satisfies the qualified eligible participant ("QEP") criteria of Rule 4.7(a). You also seek relief from the ten percent investment limitation of Rule 4.7(a)(1)(ii)(B)(2)(xi) in connection with "X's" operation of the Fund. Based upon the representations you made in your correspondence, we understand the facts to be as follows. The Fund is operated pursuant to an effective Claim for Exemption under Rule 4.7(a) filed on _________.2 Thus, interests in the Fund may be sold solely to QEPs. "X" requests exemptive relief to permit it to treat its vice-president, "A", as if he satisfies the qualified eligible participant ("QEP") criteria of Rule 4.7(a). "X" has only two other employees: "B", the father of "A" and the president of "X" and co-founder of the Fund, and one administrative assistant. "A" has been the vice-president of "X" since June 1996, and is responsible for the selection and monitoring of the investment managers to whom the Fund allocates assets. Additionally, he is a "knowledgeable employee" within the meaning of Rule 3c-5 under the Investment Company Act of 1940 ("ICA").3 The purpose of Rule 4.7 is to "reduc[e] unnecessary regulatory prescriptions for CPOs offering pool participations only to persons who, based upon the qualifying criteria in the rule, do not appear to need the full protections offered by the Part 4 framework."4 As noted above, "A" does not meet the applicable QEP criteria. However, as also noted above, he is a "knowledgeable employee" as that term is defined file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/00letters/tm00-28.htm (1 of 3) [5/6/2010 6:18:26 PM]