CFTC Staff Letter 10-23: Exemption from Part 4 Disclosure, Reporting, and Recordkeeping Requirements for Exchange-Listed Commodity Pool Units

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 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. 10-23 Exemption June 7, 2010 Division of Clearing and Intermediary Oversight Re: Regulations 4.21, 4.22 and 4.23 Request for exemption from certain Disclosure Document, reporting and recordkeeping requirements in connection with the operation of commodity pools whose units of participation will be listed for trading on a national securities exchange Dear :
This is in response to your letter dated April 9, 2010, to the Division of Clearing and In￾termediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”), as supplemented by your e-mail message dated June 3, 2010 (the “correspon￾dence”). By the correspondence, you request on behalf of a registered commodity pool operator (“CPO”), “A” (“The CPO”), exemption from certain provisions of Commission Regulations 4.21, 4.22, and 4.23,1 which concern, respectively, the disclosure, reporting and recordkeeping requirements applicable to registered CPOs (the “Relief”), in connection with The CPO’s opera￾tion of “B” (the “Fund”), a commodity pool that is currently the only series of the “C” (the “Trust”). Based upon the representations made in the correspondence, we understand the facts to be as follows. The offering and sale of units of participation (“Shares”) of the Fund will be made pursuant to an effective registration statement filed with the Securities and Exchange Commis￾sion (“SEC”) (the “Registration Statement”), and the Fund’s Shares will be listed for trading on a national securities exchange.2 The Fund has been structured and will be operated in a manner

1
Commission regulations referred to in this letter are found at 17 C.F.R. Ch. I (2010).
They can be accessed through the Commission’s website, at: http://www.cftc.gov/.
2
Your request assumes, and the Fund’s Registration Statement states, that the Shares are securities for purposes of the U.S. federal securities laws and will be offered, sold and transferred as such. While we may not necessarily agree with this categorization, the Division will not rec￾ommend that the Commission commence any enforcement action against the Fund or market

substantially similar to an exchange-traded fund, or ETF. As is explained more fully in the cor￾respondence, the sale of Shares of the Fund to Authorized Participants will be conducted in com￾pliance with Regulation 4.21. Authorized Participants will receive (and will provide to The CPO written acknowledgement of such receipt) a Disclosure Document, which will comply in full with the requirements in Part 4 of the Commission’s regulations, and which The CPO will update in accordance with Commission requirements. The current Disclosure Document for the Fund will be posted on the Internet website maintained by The CPO, and The CPO expects that pros￾pective and actual investors will utilize the services of a registered broker-dealer, who either will inform them where they can obtain the current Disclosure Document, or, upon request, will de￾liver a copy of the current Disclosure Document. The same information that would otherwise be provided in the Fund’s monthly Account Statements, including the Fund’s net asset value and the certification required by Regulation 4.22(h), similarly will be readily available via The CPO’s website, and the Fund’s Disclosure Document will advise participants of this location. You state that The CPO intends that certain financial books and records of the Fund will be kept by the Fund’s administrator, custodian and transfer agent (in each case “D” (“The Ad￾ministrator”), a banking corporation organized under the laws of the “E”) at the address specified in the correspondence. Specifically, The Administrator may keep records required by Regula￾tions 4.23(a)(1) through (a)(6), (a)(8), (a)(10) through (a)(12) and (b)(1). All other records re￾quired by Regulation 4.23 will be kept at The CPO’s main office in “F”. The Administrator has provided the Division with a signed acknowledgment that the books and records of the Fund may be inspected and copied by any representative of the Com￾mission or the United States Department of Justice and may be inspected and copied during normal business hours by Fund participants. You further ask for confirmation that The Administrator will not be deemed to be acting as a CPO solely by reason of keeping the Fund’s records in the manner described in your corres￾pondence, which the Division hereby so confirms. In this regard, the Division notes that The Administrator will not be acting in the manner contemplated by the statutory definition of a “commodity pool operator” – e.g., it will not be promoting the pool by soliciting, accepting or receiving from others property for the purpose of commodity interest trading, and will not have the authority to hire (and to fire) the Fund’s commodity trading advisor, and to select (and to change) the Fund’s futures commission merchant.3 participants in connection with the offer, sale and transfer of Shares in the manner contemplated by your request and the Disclosure Documents for the Fund. Further in this regard, we note that listing on a national
securities exchange does not af￾fect The CPO’s obligation to comply with any other provision of the Commodity Exchange Act (the “Act”) or the Commission’s regulations issued thereunder applicable to CPOs in particular or to persons in general. The Act is found at 7 U.S.C. §1, et seq. (2006), and also may be ac￾cessed through the Commission’s website, at: http://www.cftc.gov/. 3 See, e.g., 49 Fed. Reg. 4778, 4780 (Feb. 2, 1984) (Commission acknowledged staff prac￾tice of employing these criteria in determining whether a person is, or is not, a CPO); and CFTC

Based upon the representations made in the correspondence, the Division believes that granting your request would not be contrary to the public interest and to the purposes of the regu￾lations at issue. Accordingly, pursuant to the authority delegated in Regulation 140.93(a)(1), the Division hereby exempts The CPO in connection with its operation of the Fund from: (1) the requirement of Regulation 4.21(b) to obtain a signed acknowledgment of receipt of a Disclosure Document in the case of sales of Shares by the Authorized Participants to the public or sales of Shares on a national securities exchange, provided that the information required to be contained in the Disclosure Document is maintained and kept current on The CPO’s website; (2) the re￾quirement of Regulation 4.22 to deliver monthly Account Statements to purchasers of Shares, provided that the information that would otherwise be contained in such reports is maintained on The CPO’s website; and (3) the requirement of Regulation 4.23 to keep required books and records at The CPO’s main business office to the extent that such books and records are main￾tained at the offices of The Administrator. You also have requested the Relief in connection with “any similarly structured fund(s) [The CPO] may create in the future.” In this regard, we understand that the following will be true for each additional series of the Trust (each a “Future Fund”): (1) Future Fund Shares will be offered to the public pursuant to an effective registration statement under the Securities Act of 1933; ( 2) Future Fund Shares will be listed for trading on a national securities exchange; (3) The CPO will sell Future Fund Shares directly only to Authorized Purchasers; (4) The CPO will maintain the Future Fund’s Disclosure Document on The CPO’s Internet website and will keep the Disclosure Document current pursuant to Regulation 4.26; (5) The CPO will make the Future Fund’s monthly Account Statements available on The CPO’s Internet website, and will clearly disclose such availability in the Future Fund’s Disclosure Document; and (6) Future Fund books and records not maintained at The CPO’s main business office will be kept by The Administra￾tor, who, prior to effectiveness of The Relief, will have submitted an Acknowledgment and
schedule of books and records it intends to keep under The Relief (in the same form as it has
submitted in connection with this letter)
Accordingly, pursuant to the authority delegated in Regulation 140.93(a)(1), The CPO may claim The Relief for any Fund it operates by filing a notice with the NFA identifying the pool and representing that the foregoing items are true and correct with respect to the Fund. Consistent with prior practice,4 the exemption from the books and records location re￾quirement of Regulation 4.23 is subject to the conditions that: (1) The CPO notify the Division and NFA if the location of any of the books and records required to be kept by Regulation 4.23 changes from that as represented to the Division; (2) The CPO remain responsible for ensuring that all books and records required by Regulation 4.23 are kept in accordance with Regulation Staff Letter No. 09-39 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶31,473 (Jul. 30,
2009) (Division granted a CPO an exemption to keep pool books and records with the pool’s
administrator and its distributor, neither of which was thereby deemed to be acting as a CPO of the pool.)
4
See, e.g., Staff Letter 09-39.

1.31 and for assuring the availability of such books and records to the Commission, NFA, and
any other agency authorized to review such books and records in accordance with the Act and Commission regulations; (3) within forty-eight hours after a request by a representative of any of the foregoing, The CPO obtain the original books and records from The Administrator’s office, at the address previously specified, and will provide them for inspection at The CPO’s main business office in “G”; (4) The CPO disclose in the Disclosure Document of the Fund the loca￾tion of its books and records that are required under Regulation 4.23 (and update the Disclosure Document promptly to reflect any change in the location of the Fund’s books and records) and to disclose the participant’s right to inspect and copy original books and records at such location(s); and (5) The CPO remain fully responsible for compliance with Regulation 4.23. This letter exempts The CPO from Regulations 4.21, 4.22 and 4.23, as stated above. It does not excuse The CPO from compliance with any other aspect of the Commission’s disclo￾sure, reporting and recordkeeping requirements for registered CPOs, nor does it excuse The CPO from compliance with any other applicable requirements contained in the Act or in the Commis￾sion’s regulations issued thereunder. For example, The CPO remains subject to Regulation 1.31, and the Commission maintains its right under that regulation to inspect the required books and records of The CPO at the offices of The Administrator. Additionally, The CPO remains subject to all antifraud provisions of the Act and the Commission’s regulations, to the reporting require￾ments for traders set forth in Parts 15, 18 and 19 of the Commission’s regulations, and to all oth￾er applicable provisions of Part 4. This letter is based upon the representations made to us and is subject to compliance with the conditions set forth above. Any different, changed or omitted material facts or circumstances might render this letter and the exemptions granted herein void. In this connection, you must notify us immediately in the event that the operations of The CPO or the Fund change in any ma￾terial way from those represented to us. If you have any questions concerning this correspondence, please contact me or Christo￾pher W. Cummings, Special Counsel, at (202) 418-5445. Very truly yours, Ananda Radhakrishnan Director