CFTC Staff Letter 02-04: Registration Exemption for Investment Club Operators Trading Off-Exchange Foreign Currency

CFTC Letter No. 02-03
CFTC Letter No. 02-04
January 8, 2002
Interpretation
Division of Trading and Markets
Re: "X"
Dear:
This is in response to your letter dated May 20, 2001, to Barbara Gold, Assistant Chief Counsel in the Division of Trading and Markets (the "Division"), as supplemented by conversations with Division staff. By your correspondence, you inquired about possible exemptions from registration as a commodity pool operator ("CPO") regarding the operation of an "investment club."
Section 2(c)(2)(B) of the Commodity Exchange Act (the "Act")[1] makes clear that offering foreign
currency futures and options contracts, other than those that are executed or traded on an organized exchange[2] ("off-exchange"), to retail customers[3] is unlawful unless the counterparty is a regulated entity enumerated in the Act. The counterparties enumerated include registered futures commission merchants ("FCMs") and certain affiliated persons of registered FCMs.[4] However, if the off-exchange foreign currency transaction is offered to, or entered into with, an eligible contract participant, then the Act is not applicable to, and the Commission does not have jurisdiction over, the transaction.[5] Based upon your representations, we understand the facts to be as follows. The investment club will combine the funds of its participants. An account will be opened in the name of the investment club with 'Y', a registered FCM, for the purpose of trading in off-exchange foreign currency. The investment club will limit its activities to the trading of off-exchange foreign currency and will not conduct any trading on or subject to the rules of an organized exchange. Commission Rule 4.10(d)(1) defines the term commodity "pool" as "any investment trust, syndicate or similar form of enterprise operated for the purpose of trading commodity interests."[6] Generally, a person who, in connection with a "pool," "solicits, accepts, or receives from others, funds, securities, or property . . . for the purpose of trading in" commodity futures contracts is a CPO.[7] Absent an exemption, a CPO is required to register with the Commission.[8] However, it is the opinion of the Division that, with respect to a person operating a "pool" that limits its trading activities to off-exchange foreign currency with a registered FCM acting as a counterparty under Section 2(c)(2)(B)(ii) of the Act, the person is not required to register as a CPO, but may voluntarily do so.[9] Although you, or any other person who operates the investment club, may not be required to register as a CPO, please be aware that, if the investment club enters into off-exchange foreign currency futures or file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/02letters/tm02-04.htm (1 of 3) [5/6/2010 5:43:59 PM]