CFTC Staff Letter 02-88: Exemption from Rules 4.21 and 4.22 for Master Fund Operations

CFTC Letter 02-88
CFTC Letter No. 02-88
July 23, 2002
Interpretation
Division of Clearing and Intermediary Oversight Re: Request for Exemption from Rules 4.21 and 4.22 Dear :
This is in response to your letter dated June 5, 2002, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission").[1] By your correspondence, you request that “X” a registered commodity pool operator ("CPO") and commodity trading advisor ("CTA") and the CPO of the "Master Fund", be granted an exemption from the Disclosure Document delivery and the periodic and annual reporting requirements of Rules 4.21 and 4.22, respectively.[2] Based upon your representations, we understand the facts to be as follows. In addition to the Master Fund, “X” serves as the CPO of "Feeder Fund I" and "Feeder Fund II" (collectively the "Feeder Funds"). The Master Fund has as its sole participants the Feeder Funds. Rules 4.21 and 4.22 require that a CPO of a pool provide participants with certain Disclosure Documents and periodic and annual reports, as set forth in the rules. Therefore, absent the requested exemption, “X”, as the CPO of the Master Fund, would be required to provide Disclosure Documents, periodic reports, and an annual report to itself, as the CPO of the Feeder Funds. Based upon the representations contained in your letter, the Division believes that granting the requested exemption would not be contrary to the public interest and the purposes of Rules 4.21 and 4.22.[3] Accordingly, by the authority delegated to it under Rule 140.93(a)(1), the Division hereby exempts “X” from the Disclosure Document delivery requirements and the periodic and annual reporting requirements of Rules 4.21 and 4.22, in connection with its operation of the Master Fund. This relief is subject to the conditions that: (i) “X” remains the CPO of the Master Fund and the Feeder Funds; (ii) “X” limits participation in the Master Fund to the Feeder Funds, and any fund for which “X” is the sole CPO; and (iii) the annual reports of the Feeder Funds contain financial statements that include, among other information, the fees associated with the operation of the Master Fund expressed in dollars and a detailed schedule of investments made by the Master Fund.[4] The exemption granted by this letter does not excuse “X” from compliance with any other applicable requirements contained in the Commodity Exchange Act ("Act")[5] or the Commission's regulations issued thereunder. For example, it remains subject to all antifraud provisions of the Act and the Commission's regulations, the reporting requirements for traders set forth in Parts 15, 18, and 19 of the Commission's regulations, and to all other applicable provisions of Part 4. Moreover, this letter is file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/02letters/tm02-88.htm (1 of 2) [5/6/2010 5:52:49 PM]

CFTC Letter 02-88 applicable to “X” solely in connection with its operation of the Master Fund. This letter, and the exemption granted herein, is based upon the representations that have been made to the Division. Any different, changed, or omitted facts or conditions might render the exemption void. You must notify the Division immediately in the event the operations or activities of “X”, the Master Fund, or the Feeder Funds change in any material way from those represented to the Division. If you have any questions concerning this correspondence, please contact Michael A. Piracci, an attorney on my staff, at (202) 418-5430. Very truly yours, Jane Kang Thorpe Director [1] As of July 1, 2002, a reorganization of Commission staff became effective. The responsibility for addressing requests for interpretative, no-action, and exemptive letters (including letters such as your June 5, 2002, letter) is now with the Division of Clearing and Intermediary Oversight. Accordingly, for purposes of this letter, the term “Division” includes the Division of Clearing and Intermediary Oversight and its predecessor, the Division of Trading and Markets, as the context requires. [2] Commission rules cited herein are found at 17 C.F.R. Ch. 1 (2002). [3] See CFTC Interpretative Letter No. 01-86, [2000-2002 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 28,691 (Nov. 21, 2001); CFTC Interpretative Letter No. 01-85, [2000-2002 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 28,690 (Nov. 21, 2001). [4] See letter from John C. Lawton, Acting Director, Division of Trading and Markets, to all CPOs (February 1, 2002) (http://www.cftc.gov/files/tm/tmcpoannualreport2001.pdf (stating that "detailed income, fee and liquidity information for material investee pools and in total for all investee pools [are] 'material information,' " required to be disclosed in a pool's annual report, and further stating that "the schedule of investments at the investor pool level should contain the details of the investments carried by the investee pool. A schedule of investments at the investor pool level which simply lists the name of the investee pool is not sufficient."). [5] 7 U.S.C. 1 et seq. (2000). file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/02letters/tm02-88.htm (2 of 2) [5/6/2010 5:52:49 PM]