CFTC Staff Letter 97-28: No-Action Relief for CPO/CTA X Regarding Non-QEP Investors in Fund

97-28
CFTC Letter No. 97-19
March 26, 1997
Division of Trading & Markets
Re: Request to Treat Investors as Qualified Eligible Participants under Rule 4.7(a) Dear :
This is in response to your letter dated February 14, 1997, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by telephone conversations with Division staff. By your correspondence, you request relief from the qualified eligible participant ("QEP") criteria of Rule 4.7(a)1 on behalf of X , a registered commodity pool operator ("CPO") and commodity trading advisor ("CTA"), with regard to "Fund", a commodity pool operated by X which invests primarily in United States securities. Based upon your representations, we understand the relevant facts to be as follows. By letter dated September 30, 1996, the Division stated that it would not recommend that the Commission take any enforcement action against X for failure to comply with Rule 4.7(a) if it claimed relief pursuant to Rule 4.7, notwithstanding investment in the Fund by four investors who were not QEPs, and treated those investors as QEPs. X now seeks further relief under Rule 4.7(a) in order to permit additional persons who are not QEPs ("Non-QEP Investors") to invest in the Fund as limited partners. You represent that the Non-QEP Investors are sophisticated investors "fully capable of evaluating and assuming the risks of an investment in the Fund" as QEPs without the full disclosure, reporting and recordkeeping safeguards of the Commodity Exchange Act ("Act")2 and the Commission's regulations. Specifically, these Non-QEP Investors are:
(1)-(2) A and B , who are listed principals of and investment managers for Y , an affiliate of X which is registered as a CTA and CPO and serves as co-investment manager to the Fund. (3)-(6) C , D , E and F , who are investment managers for Y . 3 (7) G , who is an employee of Y . As F's principal trading assistant, G assists in managing the Fund's investments in international equities. He worked at W as a financial analyst involved in international equities research and institutional brokerage from 1993 to May 1995, and in May 1995 left W to form his own fund, Z , to trade diversified equities. 4 G , file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/97letters/tm97-28.htm (1 of 3) [5/6/2010 7:34:53 PM]