CFTC Staff Letter 15-40: Exemption from Audit Requirements for Pool Financial Statements

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5495 tsmith@cftc.gov
Division of Swap Dealer and
Intermediary Oversight
Thomas J. Smith
Acting Director
CFTC Letter No. 15-40
Exemption
March 26, 2015
Division of Swap Dealer and Intermediary Oversight Re: Relief from the audit requirement of Commission regulation 4.22(d) for “A” with respect to “B” Dear :
This is in response to your letter dated October 30, 2014 to the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”). You request on behalf of “A”, the commodity pool operator (the “CPO”) for “B” (the “Pool”), relief from the requirement in Commission regulation 4.22(d) to have an independent public accountant audit the financial statements in the Pool’s annual report for fiscal year 2014. Based upon the representations made in your letter and other correspondence with your counsel (the “Correspondence”), we understand the facts to be as follows. You request, on behalf of “A”, relief from the requirement to have an independent public accountant audit the financial statements in the Pool’s annual report for fiscal year 2014. You state that the Pool is a Cayman Islands exempted company with limited liability and is operated pursuant to Commission regulation 4.7. You state that the Pool commenced trading on July 7, 2014. You state that “A” has overall authority over, and has responsibility for, the management, operations, and administrative affairs of the Pool. You state that, as of November 30, 2014 (the end of the Pool’s 2014 fiscal year), the Pool had a net asset value of $. Also, you state that the Pool has a single participant that has waived its right to receive audited financial statements from the Pool for fiscal year 2014. You have provided a copy of this waiver to the Division. In addition, you state that “A” had filed with the National Futures Association (“NFA”) and distributed to its sole Pool participant an annual report for fiscal year 2014 that contained unaudited financial statements. Commission regulation 4.7(b)(3) provides a CPO an exemption from filing and distributing an annual report in accordance with Commission regulation 4.22(c) with respect to an exempt pool it operates in accordance with Commission regulation 4.7; provided, that the CPO files with NFA and distributes to each participant an annual report for the exempt pool that complies with Commission regulation 4.7(b)(3) within 90 calendar days after the end of the exempt pool’s fiscal year or the permanent cessation of trading, whichever is earlier.

“A”
Commission regulation 4.22(d) requires, among other things, financial statements in such annual report to be audited by an independent public accountant. The principal purpose of financial reporting required by Commission regulations 4.7(b)(3) and 4.22(d) 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 the Correspondence, the Division believes that granting relief is neither contrary to the purpose of Commission regulations 4.7(b)(3) and 4.22(d) nor to public interest. Accordingly, pursuant to the authority delegated by Commission regulations 140.93 and 4.12(a), “A” is hereby granted relief from the requirement in Commission regulation 4.22(d) to have an independent public accountant audit the financial statements in the Pool’s annual report for fiscal year 2014; provided, that within 90 calendar days after the end of the Pool’s fiscal year 2015, “A” files with NFA and distributes to all Pool participants an annual report that covers fiscal year 2015 that complies with all applicable Commission requirements, including the requirement to have the financial statements audited by an independent public accountant pursuant to Commission regulation 4.22(d). The relief issued by this letter does not excuse persons relying on it from compliance with any other applicable requirements contained in the Commodity Exchange Act or in the Commission regulations issued thereunder. Further, this letter, and the relief contained herein, is based upon the representations made to the Division. Any different, changed or omitted material facts or circumstances might render this letter void. Finally, the Division retains the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the relief provided herein, in its discretion. Should you have any questions, please do not hesitate to contact Amanda Olear, Associate Director, at 202-418-5283, or Chang Jung, Special Counsel, at 202-418-5202. Very truly yours, Thomas J. Smith Acting Director Division of Swap Dealer and Intermediary Oversight