CFTC Staff Letter 17-40: No-Action Relief from CPO Registration for Entity B via Delegation to Registered Entity A

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5000 eflaherty@cftc.gov
Division of Swap Dealer and
Intermediary Oversight
Eileen T. Flaherty
Director
CFTC Letter No. 17-40
No-Action
July 18, 2017
Division of Swap Dealer and Intermediary Oversight Re: Request For No-Action Relief from the Requirement to Register as a Commodity Pool Operator under Section 4m(1) of the Commodity Exchange Act Dear :
This is in response to your letter dated June 2, 2015 to the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission” or the “CFTC”) and subsequent email and telephonic correspondence (together with the June 2, 2015 letter, the “Correspondence”). In the letter, you request, on behalf of “A” and “B”, that “B” receive relief from the requirement to register with the Commission as a commodity pool operator (a “CPO”) under section 4m(1) of the Commodity Exchange Act (the “Act”)1 in connection with its role as trustee of certain commodity pools (the “Pools”). Instead, you state that “B” will delegate certain of its responsibilities as the CPO of the Pools to “A” pursuant to the applicable requirements of CFTC Staff Letter No. 14-126 (“Letter 14-126”),2 except for criterion 6 therein as discussed below. Background On May 12, 2014, the Division issued CFTC Staff Letter No. 14-69 (“Letter 14-69”), which was in response to numerous requests asking that the Division provide no-action relief for failure to register as a CPO under section 4m(1) of the Act, if another person would serve as the registered CPO of the commodity pool at issue (the “Designated CPO”) in lieu of the requesting CPO (the “Delegating CPO”). Letter 14-69 developed a standardized, streamlined approach pursuant to which the Division addressed these types of relief requests, and set forth certain requirements that were based on prior staff no-action letters. On October 15, 2014, the Division issued Letter 14-126, which was a further refinement of the relief addressed in Letter 14-69. Like Letter 14-69, Letter 14-126 provided no-action

1 7 U.S.C. §6m(1). The Act is found at 7 U.S.C. §§1 et seq. (2012). It may be accessed through the Commission’s website, www.cftc.gov. 2 October 15, 2014. Letter 14-126, and the other Commission staff letters referenced in this letter, is available on the Commission’s website, www.cftc.gov.

“B” relief for failure to register as a CPO under section 4m(1) of the Act, if another person would serve as the registered Designated CPO of the commodity pool at issue in lieu of the Delegating CPO. The circumstances and conditions for relief under Letter 14-126 were, in purpose and effect, the same as those set forth in Letter 14-69, with the exception of certain added clarifications. One of those conditions was criterion 6, which provides that if the Delegating CPO and the Designated CPO are each a non-natural person, then one such CPO controls, is controlled by, or is under common control with the other CPO. The relief provided by Letter 14-126 was self-executing, and no notice or claim needed to be filed, in order to, in part, ease the administrative burdens of Letter 14-69 on the Division. In issuing Letter 14-126, the Division noted that there may be other CPO delegation situations involving circumstances in which CPO registration no-action relief may be warranted that are not addressed by Letter 14-126 and indicated that it intends to continue to evaluate requests submitted pursuant to Commission regulation 140.99 for CPO registration no-action relief from persons who fall outside of the scope of Letter 14-126.3 Requested Relief Based on the representations made in the Correspondence, we understand the facts to be as follows. “A” is a wholly-owned subsidiary of “C”, an asset management company and securities broker registered with the “D” of Japan. “C” is a subsidiary of “E”, a publicly traded company. “A” was incorporated on “X”. “A” is a registered CPO and has been registered in such capacity with the Commission since “Y”. “A” serves as the investment manager to the Pools and has been registered as a commodity trading advisor since “Y”. Prior to “Y”, “A” did not engage in any activity that required registration with the Commission in any capacity. “A’s” operations are based in the Cayman Islands and Japan, and all of its books and records are kept in Japan. Currently, “A”, along with the other entities owned by “C” have approximately $ in assets under management. “B” is an entity that is organized in the Cayman Islands and its operations are based out of the Cayman Islands. “B” serves as the trustee of the Pools. The Pools with respect to which “B” is requesting registration relief as a CPO are listed in Appendix A. The Pools are trusts organized under the laws of the Cayman Islands. In addition, you state that “A” and “B” satisfy all of the applicable criteria in Letter 14- 126, except for criterion 6. In particular, you represent the following:

• Pursuant to a legally binding document, “B” has delegated to “A” all of its investment
  management authority with respect to the Pools.

3 Letter 14-126, page 2. The Division indicated the same following the issuance of Letter 14-69 as well.

“B”

• “B”, including any of its employees or other persons acting on its behalf, does not
  participate, and has never participated, in the solicitation of participants for the Pools.
• “B”, including any of its employees or other persons acting on its behalf, does not
  manage, and has never managed, any property of the Pools.
• “B” is not subject to a statutory disqualification under section 8a(2) or 8a(3) of the
  Act.
• There is a business purpose for “A” being a separate entity from “B” that is not solely
  to avoid registration by “B” under the Act and the Commission’s regulations.
• The books and records of “B” with respect to the Pools are maintained by “A” in
  Japan in accordance with Commission regulation 1.31.
• “B” and “A” have executed a legally binding document whereby each undertakes to
  be jointly and severally liable for any violation of the Act or the Commission’s regulations by the other in connection with the operation of the Pools. Relief Granted Based upon the representations made in the Correspondence, the Division will not recommend that the Commission commence any enforcement action against “B” for failure to register as a CPO under section 4m(1) of the Act in connection with its role with respect to the Pools. This position is subject to all of the representations that you have made in connection with your relief request. Although “A” and “B” are not under common control and neither “A” nor “B” controls the other, they will remain jointly and severally liable for any violations of the Act or Commission regulations in connection with the operation of the Pools. Further, “A” has been in operation for “Z” years and has been registered with the Commission for two years. “A” also has approximately $ under management when viewed in conjunction with other entities owned by “C”. “A” will maintain all books and records in Japan in compliance with regulations
  1.31 and 4.23.
  The relief issued by this letter does not excuse persons relying on it from compliance with any other applicable requirements contained in the 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. The Division retains the authority to condition, further, modify, suspend, terminate, or otherwise restrict the terms of the relief provided herein in its discretion. Finally, this letter and the position taken herein represent the views of this Division only, and do not necessarily represent the views of the Commission or of any other office or division of the Commission.

“B”
Should you have any questions, please do not hesitate to contact Amanda Olear, Associate Director, at 202-418-5283. Very truly yours, Eileen T. Flaherty Director Division of Swap Dealer and Intermediary Oversight

“B”
Appendix A
“F”
“G”