CFTC Staff Letter 96-61: No-Action Relief for CPO X Under Rule 4.7(a)

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 August 6, 1996 Re: Exemption from Rule 4.7 to Treat Eligible Employees as Qualified ligible Participants This is in response to your letter dated June 3, 1996, to the Division of Trading and Markets ("Division"} of the Commodity Futures Trading Commission ("Commission"}, in which you request certain relief from Rule 4.71./ on1 behalf of "X", a registered commodity pool operator ("CPO"},~ in connection with its operation of the "Fund". Specifically, on behalf of "X" and for the benefit of "X" and the CPOs of certain other commodity pools in which the Fund may invest you request: (1} that "X" may claim relief under Rule 4.7 with respect to the Fund notwithstanding the investment therein by certain persons who are not "qualified eligible participants" ("QEPs"} as defined in the rule; and (2} a waiver from the ten percent limitation on investments in Rule 4.7 (a) (1} (ii) (B) (xi) for pools that are QEPs but in which some participants are not QEPs to permit the Fund, which is a QEP but has some participants who are not QEPs, to invest more than ten percent of the fair market value of its assets in other commodity pools that are Rule 4.7 exempt pools ("Rule 4.7 Exempt Pools"). Based upon the representations made in your letter, we un￾derstand the pertinent facts to be as follows. The Fund is a QEP and was not formed for the purpose of investing in Rule 4.7 ex￾empt pools. The individual investors in the Fund will be "ac￾credited investors" under Regulation D of the Securities Act of 1933 but they are not all QEPs. Rather, they are managing group members and key employees ("Eligible Employees") of "Y", all of whom you have represented to be experienced professionals in the consulting business or in administrative, financial, accounting, legal or operational activities related thereto. Specifically, the Eligible Employees are: (1) shareholders of "Y", i.e.,
1.1 Commission rules referred to herein are found at 17 C.F.R. Ch.I
(1996).
~/ "X", a Delaware corporation, has been a registered CPO since June 14, 1988.