CFTC Staff Letter 04-13: Exempt CPOs May Admit Non-United States Persons Without Meeting Sophistication Criteria Under Rule 4.13(a)(3)

CFTC Letter 04-11
CFTC letter No. 04-13
April 14, 2004
Interpretation
Division of Clearing and Intermediary Oversight Re: Rule 4.13(a)(3) – Request for Interpretation Permitting Exempt CPOs To Admit Non-United States Persons That Are Not Accredited Investors Dear :
This is in response to your letter dated December 10, 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 messages dated January 9 and January 26, 2004, and by telephone conversations with Division staff (“correspondence”).[1] By your correspondence, you request that the Division confirm that a commodity pool operator (“CPO”) claiming exemption from registration under new Rule 4.13(a)(3)[2] may permit Non-United States persons[3] to participate in pools operated pursuant to such exemptive relief, regardless of whether such Non-United States persons meet the investor sophistication requirements of Rule 4.13(a)(3)(iii). On August 8, 2003, the Commission announced adoption of two new exemptions from the CPO registration requirement: Rules 4.13(a)(3) and 4.13(a)(4).[4] Exemption is available under Rule 4.13(a) (3) where the CPO complies with certain trading restrictions and admits as pool participants persons whom the CPO reasonably believes at the time of investment meet one of the following criteria: (1) an “accredited investor” as defined in Rule 501 under the Securities Act of 1933;[5] (2) a trust formed by an accredited investor for the benefit of a family member; (3) a “knowledgeable employee” as defined in Rule 3c-5 under the Investment Company Act of 1940 (“ICA”);[6] or a “qualified eligible person” (“QEP”) as defined in Commission Rule 4.7(a)(2)(viii)(A).[7] Exemption under Rule 4.13(a)(4) does not entail trading restrictions, but imposes a higher investor sophistication requirement. Under this rule, the CPO may admit as pool participants, among others, persons whom the CPO reasonably believes at the time of investment are Non-United States persons.[8] Absent the interpretation you have requested, Rule 4.13(a)(3) would require that Non-United States persons must also meet the investor sophistication criteria listed above – e.g., that they are accredited investors – before a CPO claiming exemption under that rule can admit them into the CPO’s pool. However, as you note, a CPO claiming exemption under Rule 4.13(a)(4) may admit Non-United States persons to a pool that is not subject to trading restrictions, regardless of those persons’ income, net worth or other indicia of financial sophistication. file:///H|/Desktop/04letters/tm04-13.htm (1 of 3) [5/6/2010 5:28:52 PM]