CFTC Staff Letter 98-14: Exemptive Relief for CPO X Regarding Insider and Outsider Funds

98-14
CFTC Letter No. 98-14
February 27, 1998
Division of Trading & Markets
Re: Request for Exemptive Relief from Rules 4.21, 4.22 (a) and (b), 4.25, and 4.26. Exemptive Relief Allowing Treatment of Certain Investors as Qualified Eligible Participants Dear :
This is in response to your letter, dated November 14, 1997, to the Division of Trading and Markets of the Commodity Futures Trading Commission ("Commission"), as supplemented by letters dated January 6 and January 7, 1998 and telephone conversations with Division staff. By your correspondence, you request confirmation of the exemptive relief from the requirements of Rules 4.21, 4.22(a) and (b), 4.25 and 4.26 ("Rules")1 the Division previously issued to "X", a registered commodity pool operator ("CPO"),2 with regard to ("Insider Fund"), a commodity pool operated by "X". You also request exemptive relief that would permit the participants in the Insider Fund to allocate a portion of their capital to ("Outsider Fund"), another commodity pool operated by "X", and thus be treated as if they satisfy the qualified eligible participant ("QEP") criteria of Rule 4.7(a).3 The Insider Fund Based upon the representations made in your correspondence, we understand the relevant facts concerning the Insider Fund to be as follows. The Insider Fund began trading as of January 1, 1996 and was formed for the purpose of permitting investment by the principals and employees of "X" and its affiliate, ("X" Advisors"),4 and certain members of their immediate families. By letters dated November 4, 1996, March 24, 1997, June 2, 1997 and October 29, 1997, the Division granted "X's" requests for exemption from compliance with Rules 4.21, 4.22(a) and (b), 4.24, 4.25 and 4.26 in connection with the operation of the Insider Fund.5 You now seek confirmation that "X" may continue to claim relief from the Rules if it permits certain changes in the ownership composition of the Insider Fund. You request that "B", who is currently a limited partner of the Insider Fund and is the sister-in-law of "A", the controlling principal of "X" and "X" Advisors, be permitted to transfer her interest to her husband, "F". "F", who is the brother of "A", is a certified public accountant and an accredited investor under Regulation D of the Securities Act of file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/98letters/tm98-14.htm (1 of 5) [5/6/2010 7:30:21 PM]