CFTC Staff Letter 15-18 (Exemption): Relief from Audit Requirement for Commodity Pool Annual Report

Division of Swap Dealer and Thomas J. Smith
Intermediary Oversight Acting Director
U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-6700
Facsimile: (202) 418-5528 tsmith@cftc.gov
CFTC Letter No. 15-18
Exemption
March 9, 2015
Division of Swap Dealer and Intermediary Oversight RE: “A”, the registered commodity pool operator for “B” Dear :
This letter is in response to your letter dated February 19, 2015, to the Division of Swap Dealer and Intermediary Oversight (“Division”) of the Commodity Futures Trading Commission (“Commission”). You request on behalf of “A”, the commodity pool operator (“CPO”) for “B” (the “Pool”), relief from Commission Regulation 4.22(d), which requires that the Annual Report a CPO distributes to its participants, and files with the National Futures Association (“NFA”), in accordance with Commission Regulation 4.22(c), be certified by an independent public accountant. Based upon the representations made in your correspondence, we understand the facts to be as follows. The CPO had been exempt from registration with respect to its operation of the Pool under Commission Regulation 4.13(a)(2) 1 beginning in December 2011. The CPO withdrew its claim for that exemption, in order to register with the Commission as a CPO, in July 2014 with the goal of soliciting outside participants and raising more capital contributions for the Pool. The CPO became registered on August 19, 2014, and as part of the registration process, the CPO distributed to its participants and filed with NFA an unaudited Annual Report for the Pool’s 2013 fiscal year. As of December 31, 2014, the Pool had a net asset value of $, and three participants, one of whom is the father of the CPO’s principal and the owner of % of the Pool. In support of your request for relief, you have attached waivers from all of the participants in the Pool, evidencing

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17 CFR 4.13(a)(2). To qualify for this exemption, a CPO must be operating a pool with no more than 15 participants, and no more than $400,000 in gross capital contributions, except that certain persons listed in paragraph (iii) of this exemption, as well as their contributions to the pool, may be excluded for the purpose of determining the CPO’s eligibility for this registration exemption. 17 CFR 4.13(a)(2)(i)-(iii). Such persons, generally speaking, are very much involved in the operations of a CPO and its pool (e.g., the CPO, the commodity trading advisor, and the principals thereof), or are close relatives of such persons.

RE: “A”
2 their consent to receive an unaudited Annual Report for the 2014 fiscal year. You represent that the CPO will distribute to Pool participants and file with NFA an unaudited annual report for the 2014 fiscal year, in accordance with Commission Regulation 4.22(c). Additionally, you state that, provided you receive the relief from the audit requirement you request, the CPO will in the future distribute to participants in the Pool and file with NFA an audited annual report covering the period from January 1, 2014 to December 31, 2015, in accordance with Commission Regulations 4.22(c) and (d). You request relief from Commission Regulation 4.22(d). Commission Regulation 4.22(c) requires the CPO to distribute to pool participants and file with NFA an Annual Report within 90 calendar days after the end of the pool’s fiscal year, which must include, among other things, financial statements that must be audited by an independent public accountant pursuant to Commission Regulation 4.22(d). The principal purpose of the reporting required by Commission Regulation 4.22 is to ensure that pool participants receive accurate, fair and timely information on the overall trading performance and financial condition of the pool. Based upon the representations made in your letter, the Division believes that granting your request for relief from the Annual Report certification requirement is neither contrary to the purposes of Commission Regulations 4.22(c) and (d) nor to the public interest. Accordingly, pursuant to the authority delegated by Commission Regulations 140.93 and 4.12(a), the Division will grant the CPO’s request for exemptive relief from the requirement in Commission Regulation 4.22(d) that the Annual Report be certified by an independent public accountant, thereby permitting the CPO to file and distribute an uncertified Annual Report for the Pool’s 2014 fiscal year. This exemptive relief is conditioned upon: 1) the future distribution to Pool participants and filing with NFA by the CPO of an Annual Report for the 2014 fiscal year containing unaudited financial statements and otherwise complying with Commission Regulation 4.22(c); and 2) the future distribution to participants and filing with NFA of an Annual Report complying with Commission Regulations 4.22(c) and (d) for the period from January 1, 2014 to the end of the Pool’s 2015 fiscal year. This relief is based upon the representations that you have made to the Division. Any different or omitted facts may result in a different determination and may render any relief set forth in this letter void. Therefore, you must notify the Division immediately in the event that the operations or activities of the CPO or the Pool change in any material way from those represented to the Division. This relief shall not excuse the CPO from compliance with any other applicable requirements contained in the Commodity Exchange Act or in the Commission’s regulations issued thereunder, including, but not limited to,
Part 4 of the Commission’s regulations.

RE: “A”
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If you have any questions regarding this letter, please contact Amanda Olear, Associate Director, at 202-418-5283 or aolear@cftc.gov, or Elizabeth Groover, Special Counsel, at 202- 418-5985 or egroover@cftc.gov. Very truly yours, Thomas J. Smith Acting Director Division of Swap Dealer and Intermediary Oversight