CFTC Staff Letter 96-14: Relief from CPO Registration for Funds Owned by Principals, Affiliates, and Employees with Minimal Commodity Interest Trading

U.S. COMMODITY FUTURES TRADING COMMISSION Three Lafayette Centre 1155 21st Street, NW, Washington, DC 20581 Telephone: (202) 418-5430 Facsimile: (202) 418-5536 DIVISION OF TRADING & MARKETS Dear January 29, 1996 Re: Relief from CPO Registration Where Fund is Owned by Principals, Affiliates and Employees of CPO and Commits Less Than One Percent of its Assets to Commodity Interest Trading This is in response to your letter dated December 18, 1995, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supple￾mented by telephone conversations with Division staff. By your letter, you request that the Division grant relief to the "Com￾pany" from registration as a commodity pool operator ("CPO") in connection with its operation of the "Fund". Based upon the representations made in your letter, as supplemented, we understand the pertinent facts to be as follows. The Fund is a New Jersey limited partnership, which was formed in
1989. The Company, a New Jersey limited liability company, is
the general partner of the Fund and is the registered CPO solely of the Fund. The Fund invests virtually all of its assets in securities. The Fund currently commits less than one tenth of one percent (0.1%) in commodity futures interests, and its commodity interest trading is incidental to its securities trading. The three principals of the Company and grantor trusts established by two of the principals for tJeir children collec￾tively own over 99.8 percent of the Fund.~ Each of the three principals jointly participated in the formation of the Fund and has been directly involved in managing the Fund since its incep- ~/ The principals are the trustees of the grantor trusts.

tion. Moreover, each principal is a qualified eli~~ble partici￾pant ("QEP"), as that term is defined in Rule 4.7.-/ In addition, approximately one tenth of one percent (0.1%) of the assets of the Fund are owned by two long-standing business associates of the principals ("Associates"). Each Associate has had a close business relationship with the principals for at least six years, has over ten years of investment experience and has participated in the Fund since its inception. Each Associate is a QEP. The remaining portion of the Fund's assets, less than one t enth of one percent (0.1%), is owned by five employees of wholly-owned affiliates of the Company that provide trading, research and administrative services to the Company and the Fund. Each of these employees is actively involved in managing the Fund's securities, finances or operations, is an accredited investor under Securities and Exchange Commission Rule 501, and has been employed by a Company affiliate for at least four y e ars. Based upon the foregoing representations, the Division will not recommend that the Commission take any enforcement action against the Company under Section 4m(1) of the Commodity Exchange Act ("Act"), 7 U.S.C. § 6m(1) (1994), for failure to register as a CPO in connection with its operation of the Fund. This posi￾tion is, however , subj e ct to the condi tion that each participant i n the Fund cons ents in writing to the Compa ny's withdrawal of its registration as a CPO. The relief issued by this letter does not excuse the Company from compliance with any other applicable requirements contained in the Act, 7 U.S.C. § 1 et ~ (1994), or the Commission's regulations the reunder. For e xample, it rema ins subj ect to the a ntifra ud provisions o f Section 4Q o f t he Act, 7 U.S. C. § 6Q (1994), to the reporting requirements for traders set forth in Parts 15, 18 and 19 of the Commission's regulations and to all other applicable provisions of Part 4. This letter is based on the representations made in your lette r, a s supplemente d, and is subj ect to compliance with t he condition set f orth above. Any differ e nt, cha nged or omitte d facts or circumstances might require us to reach a different conclusion. In this regard, we request that you notif y us immediate ly in the event the ope rations or acti vities of the Company or the Fund cha nge in a ny way f rom thos e represented t o us. J / Commission rules ref erred to herein are found at 17 C.F.R . Ch. I. (1995), a s amende d by 60 Fed. Re g. 38146 (July 2 5, 199 5 ).

If you have any questions concerning this correspondence, please contact me or Gary L. Goldsholle, an attorney on my staff, at (202) 418-5450. Very truly yours, Susan C. Ervin Chief Counsel