CFTC Staff Letter 03-33: No-Action Position on CPO and CTA Registration for SEC-Registered Adviser and Puerto Rico Fund Directors

CFTC Letter 03-33
CFTC letter No. 03-33
October 1, 2003
Exemption
Division of Clearing and Intermediary Oversight Re: Section 4m(1) – Request for Relief from Commodity Pool Operator and Commodity Trading Advisor Registration in Connection with the Operation of the Fixed Income Funds in the “Z” of Funds Dear :
This is in response to your letter dated July 31, 2003, to the Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”), as supplemented by your e-mail message dated September 2, 2003 and by telephone conversations with Division staff. By your correspondence, you request relief on behalf of “X” and the directors (“Directors”) of the fixed income funds of the “Z” family of funds (each a “Fund” and collectively, the “Funds”). With respect to “X”, you request relief from the requirement to register as a commodity pool operator (“CPO”) or as a commodity trading advisor (“CTA”) under Section 4m(1)[1] of the Commodity Exchange Act (the “Act”), and with respect to the Directors, you request relief from the requirement to register as a CPO under Section 4m(1), all in connection with advising and operating the Funds. Based upon the representations made in your correspondence, we understand the facts to be as follows. The Funds are registered as investment companies under the laws of the Commonwealth of Puerto Rico. [2] Each Fund has its principal place of business and maintains its books and records in Puerto Rico. The Funds propose to begin trading commodity interests. The Funds’ securities may be offered and sold only to persons who have their principal residence or place of business in Puerto Rico, and their governing documents prohibit ownership of Fund securities by anyone other than a Puerto Rico resident. The overall management of each Fund is under the control of its board of directors, with day-to-day operations delegated to the Fund’s officers and to “X” as the Fund’s administrator. “X” is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. “X” is a subsidiary of “Y”, a Puerto Rico corporation that is the underwriter or principal distributor for each of the Funds. All meetings of Fund boards of directors and all of the activities related to the management of the Funds are conducted in Puerto Rico. No more than 25 percent of a Fund’s board of directors will be U.S. citizens who are not residents of Puerto Rico, and such Directors will not be involved in any solicitation activities on behalf of a Fund nor will they control or supervise Fund operations on a day-to-day basis. At least 75 percent of the directors of each Fund will have their principal residence in Puerto Rico and none of the Directors or “X” is subject to a statutory disqualification under Section 8a(2) or 8a(3) of the Act.[3] But for the exemption provided by Section 6(a)(1) of the ICA, the Funds would be required to register file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-33.htm (1 of 3) [5/6/2010 5:38:12 PM]