CFTC Staff Letter 06-12: No-Action Relief from CPO Registration for Co-General Partner

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5430
Facsimile: (202) 418-5547 aradhakrishnan@cftc.gov Division of Clearing and Intermediary Oversight Ananda Radhakrishnan Director CFTC letter No. 06-12 June 15, 2006 Interpretation Division of Clearing and Intermediary Oversight

Re: Section 4m(1); “A” – Request for CPO
Registration Relief for Co-General Partner of a Commodity Pool Dear :
This is in response to your letter dated April 6, 2006, to the Division of Clearing and Intermediary Oversight (“Division”) of the Commodity Futures Trading Commission (“Commission”), as supplemented by telephone conversations with, and emails sent to, Division staff (collectively, the “correspondence”). By your correspondence, you seek relief on behalf of “A” from the requirement to register with the Commission as a commodity pool operator (“CPO”) under Section 4m(1) of the Commodity Exchange Act (the “Act”)1 in connection with acting as a co-general partner of (the “Fund”). The general partners of the Fund are “B”, a registered CPO, and “A”. “C”, a registered CPO, is the managing member of both “A” and “B”. “B” has all CPO responsibilities for the Fund. “A” will not exercise discretion, supervision or control over, or participate in: (i) the solicitation, acceptance or receipt of funds or property to be used for purchasing interests in the Fund; or (ii) the investment, use or other disposition of funds or property of the Fund. However, as “A” will be a general partner of the Fund, it will be serving as a CPO of the Fund and, absent relief, must register as a CPO. In support of your request, you explain that “A” has been formed to enable senior personnel of “B”, such as the Chief Operating Officer and Chief Investment Officer, to have an ownership interest in the Fund with the tax consequences most favorable to them. In this regard, you state that an ownership stake in the Fund through “A”, rather than through “B”, would provide more favorable tax consequences to the parties involved because any income derived through “A” would be taxed on a capital gains basis as an incentive-based partnership allocation rather than on an ordinary income basis derived from the management fees earned by “B”.