CFTC Staff Letter 03-23: Exemption from Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3) for Master Fund Operation

CFTC Letter 03-23
CFTC letter No. 03-23
May 5, 2003
Exemption
Division of Clearing and Intermediary Oversight Re: Request for Exemption from Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3) Dear :
This is in response to your letter dated March 25, 2003, to the Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”), as supplemented by emails dated April 10, 2003, April 24, 2003 and telephone conversations with Division staff. By your correspondence, you request that “X”, a registered commodity pool operator ("CPO") and the CPO of “Master Fund”, be granted an exemption from the disclosure and the periodic and annual reporting requirements of Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3).[1] Based upon the representations made in your correspondence, we understand the facts to be as follows. In addition to the Master Fund, “X” serves as the CPO of “Feeder Fund I”, and an affiliate of “Y”, with the same ownership and management as “X”, serves as the CPO of Feeder Fund II” (collectively, the “Feeder Funds”). The Feeder Funds (and other feeder funds that may be formed by “X” or “Y” at a future date for which “X” or “Y” will be the sole CPOs) are the only investors in the Master Fund. “X” has previously claimed relief pursuant to Rule 4.7 with respect to the Master Fund and Feeder Fund I and “Y” has claimed relief with respect to Feeder Fund II pursuant to the same rule. Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3) require that a CPO comply with certain disclosure requirements and periodic and annual reporting requirements, as set forth in those rules. Therefore, absent the requested exemption “X” as the CPO of the Master Fund: (i) would be required to provide certain disclosures and periodic and annual reports to itself as the CPO of Feeder Fund I; and (ii) with respect to Feeder Fund II, would effectively be required to provide certain disclosures and periodic and annual reports to itself since the owners and management of of “X” and “Y”, the CPO of Feeder Fund II, are the same. 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 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3).[2] Accordingly, by the authority delegated to it under Rule 140.93(a)(1), the Division hereby exempts “X” from the disclosure and the periodic and annual reporting requirements of Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3) in connection with “X’s” operation of the Master Fund. This relief is subject to the conditions that: (i) “X” remains the CPO of the Master Fund and Feeder Fund I; (ii) “Y” Remains the CPO of Feeder Fund II; (iii) participation in the Master Fund is limited to the Feeder Funds, and any fund for which “X” or “Y” is the sole CPO; and (iv) the annual reports of the Feeder Funds contain financial statements that include, among other information, detailed income and fees associated with the file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-23.htm (1 of 3) [5/6/2010 5:38:14 PM]