CFTC Staff Letter 00-43: No-Action Position on CPO Registration for Entity X

00-43
CFTC Letter No. 00-43
November 29, 1999
No-Action
Division of Trading and Markets
Re: CPO Registration No-Action Position Regarding "X" Dear :
By letter dated March 12, 1999 you requested on behalf of "X" that the Division of Trading and Markets (the "Division") of the Commodity Futures Trading Commission (the "Commission") confirm to you that "X" need not register as a commodity pool operator ("CPO") solely as a result of becoming a general partner of "Y" and "Z". In the alternative, you requested confirmation of eligibility for exemption from CPO registration pursuant to Commission Rule 4.13(a).1 By letter dated May 19, 1999 (reaffirmed by a letter dated August 27, 1999), the Division denied your request. You made a request for reconsideration in a conference with members of Commission staff on September 22, 1999.2 In support of that request, you made additional representations by letter dated November 1, 1999 to Division staff. This letter is in response to your request for a reconsideration of the denial. Based upon the representations made by you and "A", the Division understands the following additional facts are relevant to reconsideration of our denial of your request. Since "X" commenced serving as a general partner of "Y" (and of "Z") approximately one year ago, no new investors have been solicited and no new capital has been contributed by anyone outside of the consortium of financial institutions that organized "X". "X" has been engaged in a steady liquidation of "Y's" investments at the rate of one to two percent per week. Essentially, then, "X" operates in the manner of a bankruptcy trustee. From the date of formation of "X", the market strategy of "Y" has been to effect an orderly reduction of the risk profile of its investments. At all times, instruments within the Commission's jurisdiction have been used solely as risk management tools with respect to "Y's" other investments. Positions taken in Commission-regulated instruments have not resulted in an increase in "Y's" investment exposure in any instance known to "X". Heretofore, "X" has been reluctant to indicate publicly that it would merely be liquidating positions, since widespread awareness of that purpose could have put "X" at a disadvantage in the financial markets. Moreover, the potential effects of a severe market reaction to that information could have affected other investment vehicles unrelated to "Y". file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/00letters/tm00-43.htm (1 of 3) [5/6/2010 6:20:03 PM]