CFTC Staff Letter 96-05: No-Action Relief for CTA Providing Advice to Offshore Fund

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U.S. COMMODITY FUTURES TRADING COMMISSION DIVISION OF 1RADING & MARKETS Three Lafayette Centre 1155 21st Street, NW, Washington, DC 20581 Telephone: (202} 418-5430 :-acsimile: (202) 418-5536 December 22, 1995 Re: Request for Relief to Treat a Foreign Entity as a Qualified Eligible Client under Rule 4.7(b) Dear This is in response to your letter dated November 13, 1995, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), in which you request on behalf of "X" that the Divisioq confirm that "X" may claim no-action relief under Rule 4.7(b)~/ in connection with its providing commodity interest trading advice to ("the Fund") a foreign entity that is not a qualified eligible client ("QEC"), as defined in Rule 4.7(b) (1) (ii) _ Based upon the representations made in your letter, we understand the facts to be as follows. "X", a commodity t r ading advisor ("CTA") registered with the Commission, has never entered into any agreement to guide or direct trading of any client that is not a QEC under Rule 4.7(b) and has fil~d a claim o f exemption under Rule 4.7(b) (2) with the Commission.~/ "X" will act as trading manager for the Fund and in that capacity will have the authority to select trading advisors, each of whi~h will be allo￾cated a portion of the Fund's assets for trading.-/ The Fund is proposed to be organized under the laws of the Grand-Duchy of Luxembourg as a mutual investment fund. The sponsor of the Fund, "Y", is a Japanese securities firm. The manager of the Fund, "Z", is an affiliate of "Y" organized under the laws of the ~I Unless other wise noted, Commission rules referred are found at 17 C.F.R. Ch. I (1995) as amended Qy 60 38146 (July 25, 1995). ~I Commission records February 12, 1993. indicate that the filing was to herein Fed. Reg. made on ~/ You indicate that the assets of the Fund will be in excess of three hundred million dollars.

Grand-Duchy of Luxembourg.!±/ The administrator and custodian of the Fund will be organized as a bank, also under the laws of the Grand-Duchy of Luxembourg. Interests in the Fund will be sold by "Y", and certain of its non-United States affiliates, outside of the United States and only to non-United States persons as defined in Rule 4.7(a) (1) (C). Based upon the foregoing represen7ations, and consistent with our prior practice in this area,~ the Division believes that your request has merit. Accordingly, subject to the condi￾tions set forth below, the Division will not recommend that the Commission take any enforcement action against "X" for failure to comply with the QEC criteria of Rule 4.7(b) (1) (ii) with r espect to its providing commodity interest trading advice to the Fund. This position is subject to the following conditions: (1) the Fund is comparable in nature and purpose to one of the United States entities eligible for QEC treatment pursuant to Rule 4.7(b); (2) the Fund has a portfolio with a minimum value of twenty-five million dollars; and (3) the Fund consents in writing to being treated as a QEC. This letter is based upon the representations made in your letter and is subject to compliance with the condition stated above. Any different, changed or omitted facts or circumstances might require us to reach a diff erent conclusion. In this conne ction, we request that you notify us immediately in the eve nt the operations or activi ties of "X", the Fund or "Z" change in anyway from those as represented to us. We note that this letter relieves "X" solely from the QEC criteria of Rule 4 .7(b) with respect to providing commodity intere st trading advice to a non- QEC and does not excuse "X" from compliance with a ny other applicabl~ requireme nts containe d in the Commodity Excha nge Act ("Act ")Q./ or in t h e Commission' s regulations issued thereunder. For example, "X" remaii}s subject to the antifraud provisions of Section 4Q of the Act,21 to the repor ting requirements for traders set forth in Parts 15, 18 and 19 of the Commission's regulations and to all other applicable p r ovisions of Part 4. !1/ You state that, exclusive of the Fund, "Z" has in excess of three hundred millon dollars unde r management. / See CFTC Interpretative Letter No. 94- 68 [1992-1994 Tr ansfer Bi nder] Comm. Fut . L. Rep. (CCH) ,26,157 (June 30, 1994). Q./ 7 U.S.C. §1 et seg. ( ) 1994 . ]_/ 7 u.s.c. 6Q ( ) 1994 .

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Further, this letter represents the views of this Division only and does not necessarily represent the views of the Commis￾sion or of any other office or division of the Commission. If you have any questions concerning this correspondence, please contact me or Myra Silberstein, an attorney on my staff, at (202) 418-5450. Very truly yours, Susan C. Ervin Chief Counsel