CFTC Staff Letter 94-94 (No-Action): Relief from Principal Disclosure for Trading System Developer

COMMODITY FUTURES TRADING COMMISSION 2033 K Street,NW, Washington, DC 20581 (202) 254- 8955 (202) 254-8010 Facsimile DIVISION OF TRADING AND MARKETS Dear September 28, 1994 Re: Rule 4.21(a) --Relief from Requirement To Disclose Joint Developer of Trading System as a Principal of Pool Operator Where Pool Operator Is Not Acting as a Commodity Trading Advisor This is in response to your letter dated July 7, 1994, to the Division of Trading and Markets (the "Division") of the Commodity Futures Trading Commission (the "Commission"), as supplemented by your letters dated August 16, 1994 and September 21, 1994 and by telephone conversations with Division staff. By your letter you request on behalf of "X" that the Division not recommend that the Commission take any enforcement action if "X" fails to1 comply with the disclosure requirements of Commission Rule 4.21~ applicable to "A" as a principal of the commodity pool operator ("CPO") of a pool for which a Disclosure Document is required to be delivered. Based on the representations in your letter, as supplemented, we understand the relevant facts to be as follows. "X" is currently registered as a commodity pool operator ("CPO"), and is forming a new commodity pool (the "Prospective Pool") for which it intends to act both as CPO and commodity trading advisor ("CTA"). "A" has been registered as an associated person ("AP") of certain futures commission merchants and introducing brokers ("IBs") since
1983. He now owns and operates an IB business. "A" and "B", chief
executive officer of "X", have known each other for many years, and in 1991, "A" brought to "B's" attention an idea for a computerized trading system. "X" and "A" agreed to develop and test a new trading system (the "System") based on "A's" idea. "X" intends to use the System to make trading decisions for the Prospective Pool. You have represented that "B" makes all of the decisions regarding the characteristics of the System, including without limitation, money management guidelines, leverage level and whether ~/ The Commission rules referred to herein are found at 17 C.F.R. Ch . I ( 19 9 4 ) .