CFTC Staff Letter 91-1 OETF (No-Action): GaiaCorp U.S. Limited

. . .. -----~ ... -·-·-·------- --~---·--·----------·----- -··-- -· ··------------- ·-' COMMOD.ITY FUTURES TRADING COMMISSION 2033 K STREET, N.W., WASHINGTON, D.C. 20581 David R. Sawyier, Esquire Sidley & Austin One First National Plaza Chicago, IL 60603 Dear·Mr. Sawyier:
(202) 254-9880
(202) 254-3535 FACSIMILE
May 30, 1991

• This is in response to your letter dated December 14, 1990 to
  Joanne T. Medero, ·co-Chairman of the Commodity FUtures Trading Commission's Off-Exchange Ta~k Force, submitted on behalf· of your client, Gaiacorp u.s. Limited ("Gaiacorp"), as supplemented by a . meeting with Commission staff held on February 20, 1991. In your letter you state that Gaia Corp, which we understand is in the process of registering as a commodity trading atlvisor and commodity pool operator under the Commodity Exchange Act ("Act"), requests confirmation that the staff would not recommend that the Commission initiate enforcement action against it if it acted as the general partner and trading manager of a privately offered "institutional investors only" fund (the "FUnd") which would trade in off-exchange transactions for the future delivery of foreign currencies2/ as well as off-exchange foreign currency option transa_ctions. Based upon the_ representations set ~orth in your December 14, 1990 letter, we understand the facts to b~ as follows:
  .GaiaCorp would limit the prospective investors' in the Fund to institutions which meet the criteria for being "qualified institutional buyers" under Securities and Exchange commission ("SEC") Rule 144A,A/. None of the institutions permitted to .. l../To the extent that transactions described in your December i4, 1990 letter and the subsequent meeting with the staff are cash forward contracts, such transactions have been and continue to be ~eluded from the coverage of the Commodity Exchange Act. See 7 u.s.c·. 52. 2/PUrsuant to· SEC Rule 144A, qualified institutional buyers generally include: (1) certain· entities, acting . for their own account or the accounts of other qualified institutional buyers, that in the aggregate own and invest on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity; (2) registered dealers, acting f.or their own

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David R. Sawyier, Esquire invest in the Fund would itself be· a pool, or would be an investment fund formed principally for the purpose of investing in the Fund or whose assets consist solely of interests in the Fund. Further, prior to accepting any subscriptions, Gaia corp would satisfy· itself that the prospective investor is sufficiently financially sophisticated in the specialized fiel~ of off-exchange foreign currency transactions to ~derstand the risks of trading in such transactions.3/ ' . Bas~d upon the representations in your letter, tbe staff will not recommend to the Commission any enforcement action under Sections 4(a) or 4c of the Act, 7 u.s·.c. S 6(a) or S 6c, or Part 4 of the commission's regulations, 17 c.F .. R. Part 4, based· upon Gaiacorp•s offering of the FUnd which will trade in off-exchange· transactions for the future delivery of foreign currencies as well as off-exchange foreign currency option transactions, without compliance with Part 4 of the Commission's regulations, provided ·the Fund is made up solely of institutional investors as described above.4/ This position does not excuse Gaiacorp from complying with any otherwise applicable provisions of the Commodity Exchange Act or the Commission regulations; nor does it address any other proposed instrument. Any different, omitted or changed facts or conditions might require a different conclusion. :It should also be accounts or the accounts of other qualified, institutional buyers, provided that certain a~ditional criteria are ~et; (3) any ·registered investment company aci::,ing for its own account or for the accounts.of other qualified instituti9nal buyers, provided. that certain additional criteria are met; (4) any entity, all of the equity owners of which are qualified institutional'buyers, acting for its own account or the account of other qualified institutional buyers; and (5) certain banks and savings and loan associations, acting for their own accounts or the accounts of other qualified institutional ~uyers, that in the aggregate own a.nd invest on. a ~iscretionary basis at least $100 million in securities of issuers that are not affiliated with it, provided that certain additional criteria are met. See 17 C.F.R. S230.144A. 3JYou have also inaicated that Gaiacorp, for its own purposes, .has found it appropriate to limit in~titutional investment in the Fund to 10% or less of the subscribing institution's liquid net worth • . 4/l:n adopting this .no-action position, the staff does not intend to suggest that only persons or entities which meet the definition of "qualified institutional investor" under SEC Rule 144A may engage in transactions of the type proposed to be entered into by the Fund. ··.

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David R. Sawyler, Esquire
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noted. that this position is that of the staff and is not binding upon the Commission. ...
Sincerely,
Joanne T. Med·ero
Andrea M. Corcoran co-Chairmen
Off-Exchange Task Force

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