CFTC Staff Letter 03-20: Temporary No-Action Relief for Registered CPO Operating Additional Funds

CFTC Letter 03-20
CFTC letter No. 03-20
April 17, 2003
No-Action
Division of Clearing and Intermediary Oversight Re: Request for Relief from Commission’s Temporary No-Action Relief Dear :
This is in response to your letter dated February 3, 2003 to the Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”), as supplemented by emails dated March 4, 2003 and March 21, 2003 from “A” of your office, and telephone conversations with Division staff (collectively, the “correspondence”). By your correspondence, you request on behalf of your client “W”, a registered commodity pool operator ("CPO") and commodity trading advisor (“CTA”), that the Division confirm that it will not recommend that the Commission commence any enforcement action against “W” in connection with its operation of “X”, “Y” and “Z” in the manner set forth in your correspondence. Preliminarily, the Division notes that on March 17, 2003, the Commission published proposed amendments to Part 4 of its regulations (the “Proposed Rules”),[1] which concerns the activities and operations of CPOs and CTAs. In the same Federal Register release announcing the Proposed Rules, the Commission included temporary registration no-action relief for certain CPOs and CTAs (the “No￾Action Relief”). Specifically, the Commission stated that it would not commence any enforcement action against a CPO or CTA that has filed a Claim for Registration No-Action Relief for failing to register if the pools operated and/or advised by the CPO or CTA met certain criteria. The No-Action Relief provided exemption from registration for a CPO or CTA that manages or advises pools for which the level of commodity interest trading remains within certain criteria and where participation is limited to certain sophisticated investors.[2] Based upon the representations made in your correspondence, we understand the facts to be as follows. “W” is the general partner and investment advisor of “X”, “Y” and “Z”. “X” trades commodity interests, and “W” has registered as a CPO and CTA in connection with its operation of that fund. Currently, “Y” and “Z” trade exclusively securities. “W”, however, is interested in having “Y” and “Z” trade commodity interests, too. “W” would like to operate “Y” and “Z” in a manner consistent with the No- Action Relief. However, “W” cannot claim the No-Action Relief as issued. This is because: (1) “W” is already registered as a CPO and CTA in connection with its operation of “X”, and the No-Action Relief is intended for an unregistered person seeking exemption from registering; (2) the trading strategies employed by “W” in operating and advising “X” are not consistent with the No-Action Relief; and (3) “W” believes that changing those strategies might disadvantage “X’s” participants. Accordingly, “W” seeks to remain file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-20.htm (1 of 3) [5/6/2010 5:38:14 PM]